feasibility study cainari_english

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Feasibility study for the Establishment of the Industrial park in Cainari FinAsist Consulting SRL Tel: +37322 270035 e-mail: [email protected]

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Page 1: Feasibility Study Cainari_english

Feasibility study

for the

Establishment of the Industrial park in

Cainari

FinAsist Consulting SRL

Tel: +37322 270035 e-mail: [email protected]

Page 2: Feasibility Study Cainari_english

2

CONTENTS

1. Industrial park concept ............................................................................................................................................... 6

1.1 Aims and objectives of the feasibility study .............................................................................................. 8

1.2 Methodology of the study ................................................................................................................................. 8

1.3 Types of resident enterprises of the industrial park ............................................................................. 9

1.4 Legal expertise on the Law provisions regarding the establishment of Industrial Parks ... 10

1.4.1 Incentives provided upon the creation and functioning of industrial parks .................. 12

2 The establishment of the industrial park in Cainari ..................................................................................... 14

2.1 Defining the problem ....................................................................................................................................... 14

2.1.1 Net foreign investment flow ................................................................................................................ 17

2.2 The concept of the industrial park in the town of Cainari ................................................................ 21

2.2.1 Legal status of adjacent land ............................................................................................................... 22

2.2.2 Conclusion of a commodatum contract with an investor on the free use of the

adjacent land for a period of 30 years. The investor is expected to invest in the infrastructure

construction. ................................................................................................................................................................. 23

2.2.3 Rental of the adjacent land by an investor for a 30 year-term, expected to invest in the

industrial park infrastructure ................................................................................................................................ 25

2.2.4 The establishment of the industrial park based on the publicly-owned adjacent land,

using different cooperation and association models under the Law on public-private

partnership .................................................................................................................................................................... 26

2.2.5 Opinions ....................................................................................................................................................... 27

2.2.6 Steps to create the industrial park in Cainari ............................................................................... 28

2.3 Economic activities description and assessment of industrial park residents attraction

possibilities ......................................................................................................................................................................... 28

2.3.1 South Development Region (SDR) economic advance ............................................................. 28

2.3.2 Causeni district economic development ........................................................................................ 29

2.3.3 Town of Cainari situation ..................................................................................................................... 35

2.3.4 Description of local human potential for the industrial park activity ............................... 35

2.3.5 Industrial park activity regional infrastructure .......................................................................... 39

2.3.6 Technical and production infrastructure to be connected to the industrial park ........ 42

2.4 Assessing the viability of creating an industrial park in the town of Cainari, according to

the unanimously recognized criteria ....................................................................................................................... 44

2.5 Estimated investment amount necessary for the establishment of the industrial park ...... 49

2.6 The economic and financial forecast of the activity performed by the administration entity

of the park ........................................................................................................................................................................... 50

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2.6.1 Hypotheses (forecasts expressed in euro) .................................................................................... 50

2.7 Social and economic impacts of the industrial park on the regional development ............... 55

2.7.1 Impact assessment .................................................................................................................................. 55

2.7.2 Indirect impact forecast (multiplicative economic effect) ..................................................... 58

2.8 Investment appraisal ....................................................................................................................................... 58

2.8.1 Opinions ....................................................................................................................................................... 59

2.9 Environmental impact assessment upon the creation of an industrial park ............................ 59

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LIST OF TABLES

Table 1 Comparative macroeconomic evolution of the Republic of Moldova, in relation to Europe

and Central Asia region ...................................................................................................................................................... 17

Table 2 Distribution of net FI flow by areas of activity (area, share), 2009-2006 .................................... 18

Table 3 Scoreboard of the foreign investment stocks in equities, granted loans and credits (by value

of investments), end of 2009 ........................................................................................................................................... 19

Table 4 Rental revenue for 1 ha public property, normative price, MDL ...................................................... 24

Table 5 Cumulative lease revenue for the 23.44 ha IP adjacent land for a 30-year term ....................... 24

Table 6 Adjacent land sale revenue in 29 years, MDL ........................................................................................... 24

Table 7 Profits generated by IP Cainari in 30 years, MDL ................................................................................... 24

Table 8 Methods for establishing the Industrial Park in Cainari, advantages and drawbacks ............. 27

Table 9 Educational infrastructure in SDR ................................................................................................................. 29

Table 10 Căuşeni district main economic and social indicators ....................................................................... 29

Table 11 Foreign investments stock, Causeni district ........................................................................................... 30

Table 12 Fixed capital investments in 2010, Causeni district ............................................................................ 31

Table 13 Construction investments in 2010, Causeni district ........................................................................... 31

Table 14 Goods transportation in 2010, Causeni district .................................................................................... 32

Table 15 Companies, Căuşeni district, 2005-2009 ................................................................................................. 33

Table 16 Breakdown of total sales/employees by type of company, Căuşeni district ............................. 34

Table 17 Demography situation in SDR ...................................................................................................................... 36

Table 18 Average salary in Căuşeni district in 2010 .............................................................................................. 38

Table 19 Human potential in the Cainari 30 km radius ........................................................................................ 39

Table 20 The list of criteria for assessing the IP location, Urban Land Institute ....................................... 45

Table 21 Estimate guide on the location of the industrial park in Cainari ................................................... 48

Table 22 Technical and production infrastructure to be connected to the industrial park .................. 49

Table 23 Estimation of basic financial forecasts (€) .............................................................................................. 51

Table 24 Estimated minimum rental price of 1sq.m. of land, Euro.................................................................. 51

Table 25 Evolution of the land normative prices, (€)............................................................................................ 52

Table 26 Estimating the minimum rental price for 1sq.m. in the Industrial park Cainari ..................... 52

Table 27 Flexibility of the demand-supply upon the rental of 1 sq.m. of land in the IP .......................... 53

Table 28 Estimated rental price flexibility in relation to the investor's profit ........................................... 54

Table 29 Production investments performed by the future IP residents ..................................................... 56

Table 30 Investment amount required for the infrastructure of the IP in Cainari .................................... 56

Table 31 Anticipated cash flow generated by the industrial park residents (a) ........................................ 57

Table 32 Anticipated cash flow generated by the industrial park residents (b) ........................................ 57

Table 33 Indirect impact forecast (multiplicative economic effect) ............................................................... 58

Table 34 Estimate of investment amount (€) ........................................................................................................... 58

Table 35 Gas emission parameters ............................................................................................................................... 61

Table 36 Estimate of the effects of the ambient noise ........................................................................................... 62

LIST OF FIGURES

Figure 1 Industrial sector share in GDP, % ................................................................................................................ 15

Figure 2 Dynamics of Industrial Production Growth, % compared to previous year .............................. 15

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Figure 3 Growth dynamic of fixed investments in industry, % year-over-year ......................................... 16

Figure 4 Evolution of the annual net flow of foreign investments in Moldova (direct, portfolio etc.),

2004-2009 ............................................................................................................................................................................... 17

Figure 5 Scoreboard of foreign investment stocks by areas of activity 2009, % ....................................... 19

Figure 6 Estimate on changes in business environment ...................................................................................... 20

Figure 7 Typology of difficulties encountered by companies (5- highly difficult, 1- not difficult) ..... 20

Figure 9 Activity break of private investments in Căuşeni district, % ........................................................... 30

Figure 10 Fixed per capita investments in 2010, Căuşeni district, MDL ....................................................... 31

Figure 11 Global and average yield for agricultural crops, Căuşeni district ................................................ 32

Figure 12 Industrial output, 2007-2010, mil. lei, Căuşeni district, SDR, national economy .................. 33

Figure 13 Total sales and number of employees ratio by type of companies breakdown ..................... 35

Figure 14 Inhabitants according to age categories, development regions breakdown (% of total) .. 36

Figure 15 Căuşeni district population .......................................................................................................................... 37

Figure 16 Căuşeni district population, breakdown by age groups .................................................................. 37

Figure 17 Estimated working force dispersion ........................................................................................................ 39

Figure 18 Adjacent land of the Industrial park ........................................................................................................ 43

Figure 19 Spatial location of the Industrial Park in Cainari (a) ......................................................................... 43

Figure 20 Spatial location of the Industrial Park in Cainari (b)......................................................................... 44

Figure 21 Access to the border crossing points – export markets of Cainari .............................................. 48

Figure 22 Spatial representation of the technical infrastructure located in the Industrial park in

Cainari ....................................................................................................................................................................................... 50

Figure 23 Rental price flexibility compared to the final rental price .............................................................. 53

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1. INDUSTRIAL PARK CONCEPT The phenomenon of globalization accounts for the change in the economic status of the

developed countries and is an important and prominent feature of the current economic

development. The existing pressures on the structural adaptations in the area of

production, investment and business are a common feature of the world economic

development. The experience and know-how of most developed European countries show

that the creation of capital resources and their uses represent one of the most crucial and

important questions to ensure the sustainability of the economic progress, whose

fundament dwells in capital tapping and the development of industrial parks. For the

Republic of Moldova, industrial parks represent an opportunity to attract investment

inflows, including foreign, and is a direct factor to lower unemployment.

Various definitions of Industrial Parks (hereinafter IP) have been made. But the definition

made by the United Nations Industrial Development Organization is considered to be the

broadest. According to UNIDO’s definition, “An industrial park can be defined as a tract of

land developed and subdivided into plots according to a comprehensive plan with or

without built-up (advance) factories, sometimes with common facilities and sometimes

without them, for the use of a group of industrialists” (UNIDO, 1997, p.10). Two points in

the definition above need amplification. The comprehensive plan refers not only to the

physical planning of the park, but also to its immediate economic and social environment,

and its role assigned in the regional or urban development plan.

UNIDO have also described some of the characteristic features of industrial parks, as

follows:

A defined geographical area which contains enterprises of an industrial nature. The

essential element is that the park is administered or managed by a single authority

that has defined jurisdiction with respect to tenant companies;

Industrial Parks cover up a relatively large surface area of 40-80 ha;

There are some restrictions on companies residing in the park;

A plan concerning the type of construction and the size of individual objects is

required, which would set out the overall use of the infrastructure. Finally, the IPs

development complies with the set-out plan, covering the physical layout of the park

and its economic and social environment, depending on the role within the regional

or urban development plan.

The national legislation uses the term „industrial park”, which is, in fact, very similar to the

term "industrial district", “production area” or “production cluster”. Nonetheless, English

economic literature uses terms such as industrial estate, commercial estate, factory estate,

or employment areas.

According to the legal provisions in force of the Republic of Moldova – particularly the Law no.

182 of 15.07.2010 on Industrial Parks, an Industrial park is defined as a “delimited territory with

technical and production infrastructure, where economic activities are being carried out, mainly

industrial production, service provision, implementation of the scientific researches and/or

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technological development, under a specific facilities regime, for the purpose of capitalizing human

and material potential of the respective region”.

The „industrial agglomeration” term can also be added to theoretically define IP

peculiarities. In recent decades, there existed an increased interest for the theory of

industrial agglomerations, based on Marshall’s economic studies, location theory of Weber

and others, and later the additions by the contemporary specialists in industrial economies,

regional economies and international trade, etc. who discussed the factors, formation

mechanism and functioning of the industrial agglomeration1.

Industrial agglomeration refers to the spatial accumulation of enterprises, belonging to the

same branch/industry or immediate braches/industries.2 Whether on vertical division or

horizontal cooperation, such enterprises make up an organic whole that brings about

„agglomerate” profits and an overall increase. To sum up, the main peculiarities of the

industrial agglomerations are the regional concentration and industrial symbiosis.

The agglomeration of enterprises of a certain industrial chain can raise the production in a

great degree, then lower the average costs and realize the industrial economy of scale. The

infrastructure facilities and labour pool greatly raise enterprises’ abilities of competition

and innovation (synergic effect). Industrial agglomerations lead to a decrease in

transaction costs. Near-by location of enterprises can greatly decrease the transport costs

and give a rise to the industrial climate, attracting more external suppliers and consumers,

thus strengthening the negotiation ability3.

Industrial parks underwent several steps of development and we can talk about few

generations of industrial parks. Typically, the first generation of industrial parks, which

were built in the 1970s, can be distinguished from the other generations by assembly halls

and storages and a rather simplistic architecture. The area of administrative buildings took

about only 10 to 15 per cent of the total area of the park. In the period between 1975 and

1985, the industrial parks included offices, used by companies dealing with science,

technologies and business. Characteristic of this second generation of industrial parks was

a challenging and more complicated architecture. Since the second half of the 1980s, the

third generation industrial parks was built; these were typical by elastic use of the area and

a wide portfolio of services, as well as by an increase in the number of administrative staff

and furthermore, more space was offered to offices focusing on IT. Administrative

buildings and a wide portfolio of services was characteristic for fourth generation

industrial parks which begun to arise from the mid-1990s. Storage houses were usually

located outside the park itself and there was an increase in the importance of recreational

areas connected to the park that were used by people working in them. Since the second

1 Economics of agglomeration cities, industrial location, and regional growth. Masahisa Fujita 2002. Cambridge University, UK. 2 Territorial agglomeration as a local innovation environment: The case of a digital media agglomeration in tampere, Finland. Jari

Kolehmainen 2003. MIT IPC-LIS Working Paper, Cambridge, US. 3 McCann, P., Arita.T. & Gordon, I.R. (2002). Industrial clusters, transactions costs and the institutional determinants of MNE

location behavior. International Business Review.

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half of the 1990s, industrial parks have been a part of an international network of

cooperating parks.

This study will analyse the feasibility of establishing an industrial park in the town of

Cainari.

1.1 AIMS AND OBJECTIVES OF THE FEASIBILITY STUDY The objective of the feasibility study on the creation of an industrial park in Cainari

comprises a detailed analysis of legal, economic, financial, social and technical

circumstances, aiming to demonstrate the viability of creating the industrial park:

Economic and social impact analysis, performed to demonstrate the rationale for the

creation and support of an industrial park;

Analysis of economic profile and legal compliance of the existing enterprises and

enterprises in need of restructuration, that will be assigned administrative/resident

status within the concerned industrial park;

Upon the provision of positive argumentation concerning the creation of the

industrial park, there will be developed the strategic plan on the creation of the IP,

the implementation of the strategy and the further development of the IP.

The objectives for the creation of industrial parks have been set out in the Law no. 182 of

15.07.2010 on Industrial Parks, as well as by the characteristics of the industrial parks

referred to in the chapter on industrial park concept:

Attraction of domestic and foreign investments;

Formation of competitive industry sectors based on modern and innovative

technologies;

Deployment of economic activities consistent with the specific development

opportunities of the area, including more efficient use of public assets;

Development of small and medium enterprises;

Job creation;

Creation of specific conditions for the industrial agglomeration of enterprises

belonging to the same industry/industry or branches of industry/immediate

industry;

Increasing productivity at a significant level and cost optimization by facilitating

enterprise agglomerations of a specific industrial chain;

Creation of an optimal industrial climate to attract more suppliers and external

customers in order to strengthen the negotiating capacity with them.

1.2 METHODOLOGY OF THE STUDY The methodology applied in the preparation of the feasibility study was based on the

following research and analysis tools:

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1. Considering the current reality regarding the existing IPs in Moldova, as well as the

analysis of sector strategies or existing program documents, lessons learned from

the past and barriers identified.

2. Using primary research methods, quantitative and qualitative methods that ensure

the effective collection of analytical data for the proposed deployment.

3. Policy formulation and provision of real solutions to be implemented in a way that

government can become a trusted partner, providing quality services and protecting

both public and private interests, development of innovative partnerships and

business development within the IP, ensuring the best financial and investment

practices in the area, and finally, establishment of development levers and

implementation of IPs. This included, but was not limited to structured and

unstructured interviews with people in positions of responsibility in the field, group

interviews and focus groups, using best international practices in reasoning the

creation of IP (UNIDO methodology).

4. Resorting to and applying the experience in the development of IPs in different

countries, including those in South East Europe, involving the legal and economic

circumstances of the internal situation. There have been carried out SWOT analyses

of various scenarios for the involvement of private partners in the creation and

development of IPs. As a result a series of recommendations will be made, the

opportunities and risks shall be listed, that could be considered upon the

development of IPs.

5. Use of techniques for the identification and analysis of regional characteristics.

Using these criteria as a research guide will help present the locations of the future

IP. In collecting the data, a variety of research methods will be used, including the

examination of the local, regional and technical documentation for planning,

geographic data layers, and interviews with staff members from public and private

agencies.

6. Use of appropriate methodologies for the analysis of the IP management company

and of the economic activities deployed by its future residents, such as business

efficiency through business and dividend forecasting, as assessment methods,

financial results forecasting, analysis of existing financial situations (balance sheet

and profit account), cash flow forecasting and liquidity of enterprises, current

industrial and investment risk analysis, etc.

1.3 TYPES OF RESIDENT ENTERPRISES OF THE INDUSTRIAL PARK Despite the abundance of information and studies on the location of the enterprises and its

determinants, little attention has been paid to the attractiveness of the locations depending

on the type of enterprise. Industrial parks fall into a category with "special attributes"

which could be enhanced to attract certain types of companies.

Industrial parks possess peculiar characteristics that affect their attractiveness as

compared to other companies.

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Applying the economic and fundamental marketing theories, we can generate a set of

hypotheses concerning the location of enterprises within the industrial parks:

More likely the small enterprises will be the future residents of the park, to the

detriment of their larger counterparts;

There is a high probability that light industry, rather than heavy industry, will be

located in the park;

The point of optimal transportation includes long distance transportation costs - the

ratio between the weight of the raw material and the finished product. Industrial

parks are more attractive to the industries that accumulate raw material and

produce heavy finished goods4;

The larger the outlet of an undertaking, from geographical point of view, the more

attractive the option to perform its activities in an industrial park;

It is improbable that high consuming energy companies will locate in the industrial

park.

Microenterprises may encounter difficulties related to the resident payment of the

industrial park, while large companies generally operate more efficiently performing on

their own industrial land. Therefore, the main residents of the industrial park are expected

to be small and medium enterprises.

The number of residents employed in the industrial park may vary, but on average, given

the characteristics of small and medium enterprises, it may indicate an area of about 5000

sq. m. occupation.

The "point of optimal transportation": weight-gaining industries are usually placed at a

greater distance from their raw material sources, compared with industries using heavy

and bulky raw materials (weight loss industries), which are normally located nearby their

raw material sources.

The industrial park provides a preset territory with a previously established infrastructure.

Therefore, performing an activity in the industrial park may not constitute an attractive

location for a company with special energy needs, that would rather consider the

development of its own production area.

1.4 LEGAL EXPERTISE ON THE LAW PROVISIONS REGARDING THE ESTABLISHMENT OF

INDUSTRIAL PARKS The process of creating and functioning of industrial parks in the Republic of Moldova is

regulated by Law on Industrial Parks Nr. 182 of 15.07.2010.

4 Wilhelm Launhardt, Alfred Weber “Least cost theory of industrial location”. Theory of the Location of Industries, according to their type.

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The legislation defines the park as “delimited territory with technical and production

infrastructure, where economic activities are being carried out, mainly industrial production,

service provision, implementation of the scientific researches and/or technological development,

under a specific facilities regime, for the purpose of capitalizing human and material potential of the

respective region”.

Therefore, in order to be granted legal status of an industrial park, a certain territory has to meet

the following conditions:

Delimited territory of at least 5 ha area;

Existing technical and manufacturing infrastructure within the territory;

Performing an economic activity, including entrepreneurship, mainly of industrial

nature.

The conditions are rather simple, though the legislation did not apply an exhaustive notion,

leaving the opportunity to create an industrial park to the current economic environment.

In this respect, the Law nr. 182 established the technical and production infrastructure as a

mandatory element of an industrial park, as “buildings and facilities, electricity supply

systems, telecommunications networks, gas and water supplies, sewage and pluvial systems,

transportation, public lighting etc.” Formally, it is important that the land destined for the

industrial park accommodated at least one infrastructure connection, e.g. public lighting, in

order to be regarded as a subject for the creation of an industrial park.

Moreover, the law allows the pursuit of non-production activities within the industrial park

territory, provided they would be "mainly of industrial nature".

Industrial parks can be created both by public entities (central agencies or local

administrative authorities), as well as private economic agents (commercial

companies or state enterprises).

As promoters for the creation of industrial parks, public entities are entitled to two

opportunities, provided by law:

Establishment of a public or public-private commercial company;

Selection of a commercial company in accordance with the Law on public-private

partnership, that will be transferred the publicly owned property for the

establishment of the industrial park.

Article 106, par.2 of the Civil Code of the Republic of Moldova, enacted by law Nr. 1107

of 06.06.2002, provides an exhaustive list of the companies entitled with the commercial

company status: “A commercial company can only be established as a collective society, in

limited partnership, limited liability company and joint stock company.”

Therefore, public entities can establish limited liability companies or joint stock

companies in order to create industrial parks. The public capital of these companies

delimits only the commercial companies whose registered capital is formed entirely from

state’s contribution or from that of the administrative-territorial unit (Law on

administration and deetatization of public property Nr. 121 of 04.05.2007). State’s

contribution to the registered capital of the companies can only be submitted either

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through the assets under the state-owned public property or the administrative-territorial

units, as the public property assets make the exclusive object of the public property and

their civil circuit is prohibited

The legal notion of a public-private commercial company is exposed in the Law on

administration and deetatization of public property that approaches state and private

capital commercial companies. The correct perception of the notions of public commercial

company and that of commercial company with public controlling interest is of great

importance, since they belong to separate groups of commercial companies.

Therefore, compliant with the Law on industrial parks, the authorized public entities are

entitled to establish industrial parks by means of commercial companies with public-

private capital, that is, commercial companies whose registered capital is not formed

entirely from state’s contribution neither from state’s controlling contribution (50%+). In

this context, the legislator has provided the state with all the possible opportunities for the

establishment of industrial parks.

The second modality for the establishment of industrial parks, with the participation of

public entities, can be carried out through the private-public partnership. In this case,

unlike the private-public companies, there will be supplementarily added the legal

provision of Law Nr. 179 of 10.07.2008, on public-private partnership. Compliant with this

law, the public-private partnership can be accomplished via the association of the private

and public partners, through the establishment of a commercial company (limited liability

company or joint stock company), based on joint capital (public-private).

The Ministry of Economy of Republic of Moldova represents the body empowered by law to

examine the applications for registration of the industrial parks. In case a positive opinion

is issued, the industrial park will be established through a government decision.

In addition to the registration procedure for the industrial parks, the legislator provides a

"consultative" procedure, where local public administrations are involved. Under this

procedure, the developer of the industrial park has the right to file the application with the

local council, who has jurisdiction over the land plot destined for the park. It should be

retained that the law provides the initiator with the right and not the obligation to submit

the said application for the establishment of an industrial park with the local council.

Formally this procedure is not mandatory, thus it cannot be a legal impediment for the

creation of an industrial park. The involvement of the Local Council, from legal point of

view, consists in „support in obtaining the necessary documents for the creation and

development of the industrial park and to prevent the occurrence and/or remove of any

possible impediment in solving the eventual problems related to the establishment and

development of the industrial park. (art. 7, paragraph 11, Law on Industrial Parks)”.

1.4.1 INCENTIVES PROVIDED UPON THE CREATION AND FUNCTIONING OF INDUSTRIAL PARKS

The incentives are stipulated by article 12 of Law on industrial parks no. 182 of

15.07.2010:

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a) exemption from compensation of losses caused by the exclusion of land from

agricultural land category according to the Law on Normative price and procedure

for sale of land;

b) free alienation or commodatum of public property goods to the management

company for the creation and development of the industrial park by owner's

decision under the Law on administration and deetatization of public property;

c) the right to privatize the publicly owned territory, adjacent to the constructions, at

the normative price of the land, set at the time of giving it into use to the

management company or into lease to the residents of the industrial park, only after

the purchase and/or putting into service of the constructions and industrial and

related facilities under the Law on Normative Price and procedure for purchase

and sale of land. The incentive is granted for the investments in buildings and

facilities covered by the project, based on which the resident or the management

company was selected. Its value is higher the amount of three normative prices of

the land, set at the time of its release to the management company or leased to the

residents. Additionally, the compensation payment for losses is performed, caused

by the exclusion of land from agricultural land category, whose amount has been

settled upon the change of the land-use purpose, whether it took place;

d) providing fiscal incentives according to the Fiscal Code;

e) the management company applies the decrease coefficient down to 0.3 on the

tariff for the annual fee for public land rental according to the Law on the

Normative Price and the procedure for sale/purchase of land, or the base rate for

the annual rental of the publicly-owned goods, established by the Law on state

budget for the year.

f) optimization of state controls over the activity of residents by carrying out

scheduled checks according to annually approved schedules by government

decision or unannounced checks carried out in agreement with the Ministry of

Economy under the laws in force;

g) allocation of financial resources, where appropriate, for the creation of technical and

production infrastructure.

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2 THE ESTABLISHMENT OF THE INDUSTRIAL PARK IN CAINARI

2.1 DEFINING THE PROBLEM The Ministry of Economy in Moldova, as a centralized body empowered by law to set out

industrialization policies, has laid down a range of barrier hypotheses, which now

vehemently tell against the industry revitalization, as follows:

Limited access to the industrial land for launching and carrying out an industrial

activity.

High costs and risks posed by the bureaucratic procedures upon the initiation and

deployment of industrial activities.

High costs and risks related to government control over the entrepreneurial activity.

High expenses on import equipment, raw materials and other launching-related

goods.

Major expenses and risks related to import-export procedures.

High expenses on utility connections. Other expenses met by the industrial investors related to taxes in Moldova.

The identified causes work out as barriers to be overcome through appropriate solutions.

Over the years several industry recovery programs and strategies have been undertaken.

Among them:

Government of the Republic of Moldova, Program of activity „European Integration:

Freedom, Democracy and Welfare” 2009-2013, which provides for the creation of a

network of industrial parks under the aegis of local public administration,

particularly in adjacent border areas to encourage integration of enterprises in

international technological networks.

Economic Stabilization and Recovery program of the Republic of Moldova 2009-

2011, where the component "Improving the investment climate" establishes further

development of industrial parks concept by setting up new units and examining the

option of expanding the incentives for residents of such parks.

The National Development Strategy for 2008-2011, which focuses, in the chapter of

"Attracting investments, in particular foreign direct investments" on promoting

investment opportunities by providing investors with access to free economic

zones, industrial and innovation parks, etc. In the chapter on "Promoting effective

tools to facilitate the convergence of the development and economic growth of

cities, as well as the network consolidation of small towns "refers to the

development of economic infrastructure (free economic zones, industrial parks,

logistics centers).

Action Plan for the implementation of the National Development Strategy for 2008-

2011: Creation of three industrial parks in the regional growth area until 2011.

The Strategy for attracting investments and Promoting Exports 2006-2015.

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Industrial Development Strategy until 2015, approved by Government Decision no.

1149 of 05.10.2006, refers to the creation of industrial parks and monitoring their

activities.

These adopted policies and strategies are called upon to improve the situation in the

industrial sector in Moldova, which currently shows a negative trend. Even though 2010

has seen an approx. 7% rise in the industrial production, this increase recorded a negative

value in the development figures of the previous years.

The indicators in the chapter on investments in industry show a low investment situation

in the industrial sector and a decreasing trend over the last decade, confirmed by the

Figures 1-3:

Figure 1 Industrial sector share in GDP, %

Source: National Bureau of Statistics

As evidenced, the share of industry in GDP presents low figures and shows a decreasing

trend in the last decade, accounting for only 13% in 2009.

The low share of industry in GDP is confirmed by the negative evolutions of the industrial

production volume after 2006:

Figure 2 Dynamics of Industrial Production Growth, % compared to previous year

Source: National Bureau of Statistics

The growth dynamic of fixed investments in the industrial sector registered a positive

trend over the recent years, but still insufficient for the recovery and development of this

sector.

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The gross fixed capital formation decreased as a result of the economic crisis in 2009

(Figure 3). Up to the economic crisis in 2009, Moldova has registered improvements both

in fixed investments in industry and in foreign direct investments. Nonetheless, the amount

of FDI per capita was much lower than in Central and Eastern Europe.

Figure 3 Growth dynamic of fixed investments in industry, % year-over-year

Source: National Bureau of Statistics

The national economy currently experiences an overheating of the structure indicators.

Moldova performs poorly in promoting a sustainable economic model. The economic

processes throughout 1999-2009 depict a striding progress towards a veritable market

economy. These processes varied generally between periods of economic growth and

overall enhancements of macroeconomic vulnerabilities.

The hallmark of this post-soviet scenario has translated into Moldova's economic

competitiveness fundamental feature: comparative regression. As per the World Economic

Forum data, between 2005-2009, Moldova has constantly dropped positions: from the 89th

out of 125 down to the 95th out of 134 analysed states. According to statistics, the most

precarious areas in 2009 have been: the level of business sophistication (ranked 131st out

of 134 states), innovation (rank 116) and infrastructure (ranked 113th). Among the most

problematic factors for doing business have been: access to finance, corruption, inflation

and precarious infrastructure availability. The highlight area of the Moldovan economic

competitiveness refers to the labour market efficiency (ranked 55 out of 134)5.

Overall, the national economy is defined by a disproportionate aspect of the final

consumption in relation to GDP (117, 5%) which is the highest among 3 of the 57 countries

in Europe and Central Asia (ECA)6. This accounts mainly to imports (72, 4% of GDP) and

has been achieved due to the significant volume of remittances (22,4% of GDP).

5 Global Competitiveness Index, World Economic Forum 6 Europe and Central Asia – reference region in the World Bank statistics, comprising 58 countries, including Europe and former USSR states

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Table 1 Comparative macroeconomic evolution of the Republic of Moldova, in relation to Europe and Central Asia region

# 1999 2009

% of GDP Pos. ECA % of GDP Pos. ECA

Gross final consumption 115,3 5 150,5 2 Remittances 9,5 4 22,4 2 Imports 67,4 9 72,4 3 Exports 52 13 40,7 30

Source: World Bank data,NBS,NBM

Among the major misbalances in the national economy are the formation and use of

resources. The added value in agriculture accounted for slightly over 10% of GDP last year

(28% in 1999), similar to the added value in industry (19% in 1999) and, at the same time,

much lower compared to the services sector – 79% (53% in 1999). The existing situation

requires measures that would increase the share of other 'laggard' sectors in GDP,

especially of industry.

One of the solutions submitted within the programs is the creation of industrial parks, in

support of which the Parliament of the Republic of Moldova adopted the new law (nr. 182)

of 15.07.2010, which repealed the existing law from 13.07.2007 on industrial parks.

2.1.1 NET FOREIGN INVESTMENT FLOW The period 2004-2009 recorded a divergent performance in terms of the net FI flows

evolution (see figure below). Determined as the input and output balance on each of the

relevant positions (FI in registered capital, credits & loans etc.), net FI flow revealed an

implicit synchronization reflex with the world economic crisis in 2008: the net trend

described a sharp change towards a negative dynamic. In 2009, the net FI flow was 1,7

times higher than the level reported in 2004.

Figure 4 Evolution of the annual net flow of foreign investments in Moldova (direct, portfolio etc.), 2004-2009

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As compared to the previous year, 2009 recorded a sharper decrease of FI. At the 2008

year-end, the net flow of FI was particularly noticeable by its fragile structure. The severe

contraction of FDI net balance in the registered capital and the crunch of credits and loans

granted by the foreign founders to the resident enterprises show an obvious kickback of

the foreign investments from the national economy.

The shifts in the net flow value and structure of FI are visible in both their origin and

sectorial destination.

Real estate transactions accounted for nearly 2/3 of the net FI flow in 2009. Electrical and

thermal energies, gas and water sectors recorded a negative net flow, equivalent to more

than half of the net FI flow volume (Table 2).

Table 2 Distribution of net FI flow by areas of activity (area, share), 2009-2006

# 2009 2008 2007 Area

Area % Area % Area % Area %

1 Real estate transactions

73,1 Financial activities

36,5

Financial activities

37,1

Transports & Communications

26,9

2 Trade 23,5 Trade 27,8

Real estate transactions

29,4 Trade 24,2

3 Construction 22,5 Real estate transactions

13,5

Trade 15,7 Real estate transactions

15,5

4 Manufacturing Ind.

14,2 Manufacturing Ind.

9,5 Manufacturing Ind.

5,8 Manufacturing Ind.

15,2

5 Transports & Communications

13,3 Transports & Communications

5,9 Constructions 5,1 Financial activities

15,0

6 Other 7,6 Agriculture 2,6 Transports & Communications

4,1 Constructions 2,0

7 Health 6,9 Constructions 2,5 Hotels & Restaurants

2,8 Agriculture 1,0

8 Hotels & Restaurants

4,6 Other 2,3 Other 0,8 Other 0,6

9 Agriculture 2,1 Hotels & Restaurants

0,2 Agriculture 0,7 Hotels & Restaurants

0,3

10 Financial activities

-14,6 Health 0,0 Energy, gas, water

-1,5 Health 0,1

11 Energy, gas, water

-53,3 Energy, gas, water -0,8 Education 0,0 Energy, gas, water

-0,9

Author’s calculations based on statistical data

According to estimates, foreign investments aim most often at financial activities, trade,

manufacturing industry and real estate transactions (Figure 5):

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Figure 5 Scoreboard of foreign investment stocks by areas of activity 2009, %

The most indebted areas are those of financial activities, manufacturing and trade

industries. Most direct investments in the registered capital go for the real estate

transactions, financial investments and trade areas (Table 3).

Table 3 Scoreboard of the foreign investment stocks in equities, granted loans and credits (by value of investments), end of 2009

# Direct investments in

registered capital Credits and loans, %

1 Real estate transactions 26,3 Financial activities 25,1

2 Financial activities 20,4 Manufacturing Industry 22,6

3 Trade 18,8 Trade 20,5

4 Transport&communications 13,1 Energy, gas, water 12,6

5 Manufacturing Industry 10,2 Real estate transactions 8,0

6 Constructions 4,7 Transports&communications 4,8

7 Energy, gas, water 4,1 Hotels&Restaurants 2,1

8 Agriculture 0,9 other 4,3

9 other 1,5

Source: NBM data, NBS publications

According to the legal provisions of Law no. 182 of 15.07.2010 on industrial parks, the list

of incentives in article 12 offered for industrial parks mentions a key issue for investors

and private producers, particularly to facilitate optimization of state controls over the

activity of industrial park residents by carrying out planned checks according to the annually

approved schedule by Government decisions or unannounced controls carried out in

agreement with the Ministry of Economy under the laws in force.

The importance of the facilities referred to upon the creation of industrial parks is

confirmed by the results of the study on perceptions of the national investment climate

state and dynamics. The study was carried based on the analysis of 621 companies selected

among the resident companies in the Republic of Moldova. This study has identified that

the general indicator of time, which is a general estimate of state's involvement in the

activity of businesses, had a downward trend in 2010 observed during the last six years,

decreasing from 11.2% to 9,9%. Managers' view on the business environment became

more positive compared to the previous year (Figure 6). Over the past year the percentage

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of respondents who stated that the business situation worsened fell from 42% to 26%. In

addition, the share of those who have noticed improvements increased significantly from 5

to 22%. Taking into account these results and the mentioned facility, the creation of

industrial parks turns out as an important precondition for revitalizing the business sector

in general and the industrial profiled in particular:

Figure 6 Estimate on changes in business environment

The most specific characteristic of the industrial park is the concentrations of businesses

on a determined territory and the tight relationships among the IP residents with third

parties, with the possibility of establishing a single one stop shop for the entire park.

Such specific feature of the industrial park, i.e. of the industrial agglomeration of

enterprises within a given territory will lead to the improvements in the bureaucratic

procedures related to the deployment of own businesses. According to the same study, the

most difficult matters in 2010 arose in licensing procedures, taxation system, the process of

obtaining permits and frequent inspections, difficulties that could be overcome through the

establishment of a single one stop shop in the industrial park. The situation did not change

significantly over the last year, as shown in the Figure 7:

Figure 7 Typology of difficulties encountered by companies (5- highly difficult, 1- not difficult)

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Moldova's industrial policy is focused on strengthening and encouraging factors

determining the creation of a technologically advanced industrial sector of the economy,

efficient and competitive - compliant with the European standards. This objective can also

be achieved through the establishment of industrial parks.

In this context, the Government adopted the Strategy for industrial development for the

period until 2015 by Government Decision no. 1149 of 5 October 2006. The strategy refers

to a number of tools and mechanisms to implement industrial policies of the country which

will influence positively the fulfilment of industrial policy's strategic objective. In this

respect, the main instruments are:

Formation of professionally qualified staff;

Strengthening the structural reforms in the industrial sector – IP contribution;

Development of innovation process and technology transfer – IP contribution;

Stimulating entrepreneurship and ensuring fair competition – IP contribution;

Support of investment activity – IP contribution;

Increasing product quality. Improving the product standardization and certification

– IP contribution;

Promotion of industrial products exports – IP contribution concurrently with free

economic zones;

Optimizing the regional location of the industry – IP contribution;

The implementation of the concerned instruments and creation of a network of industrial

parks across the territory of the Republic of Moldova will help and ensure in the projected

perspective:

1. An annual growth rate of industrial products of cca 8-10%;

2. Increase of industry share in GDP to 20-22% by 2015;

3. Achieve the 2% share of the production in science-intensive and advanced

technology branches in the overall industrial output;

4. Increase the share of employees in the industrial sector to 20% of the total number

of employees in national economy by 2015.

2.2 THE CONCEPT OF THE INDUSTRIAL PARK IN THE TOWN OF CAINARI

The legal basis for the industrial parks in the Republic of Moldova has undergone two

stages of development, particularly:

1. The adoption of Law no. 164 of 13.07.2007 on industrial parks and

2. The adoption of the New Law on industrial parks no. 182, of 15.07.2010 and the

repeal of the previous Law no. 164 of 13.07.2007 on industrial parks.

The Industrial Park Cainari was established on 26 august 2008, by Government Decision

no. 988 of 26.08.2008, compliant with the Law no. 164 of 13.07.2007 on industrial parks.

Although the Law was later repealed, the new Law no. 182 of 15.07.2010 on industrial

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parks does not have a retroactive effect. Thereupon, the industrial park in Cainari existed

de jure up to the present day.

The Government Decision no. 988 of 26.08.2008 on the establishment of the industrial park

Cainari included the following provisions:

Accepting under the state ownership the 23.4 ha adjacent land of the industrial park,

free of charge, according to the decision by the Cainari town Council;

Establishing the State Enterprise „Cainari Industrial Park”;

The Ministry of Economy and Trade in Moldova was settled as the empowered body

to exercise the founder rights.

Despite the Law on industrial parks of 2007 and the Government Decision on the industrial

park in Cainari, the park did not perform any activities since its establishment.

2.2.1 LEGAL STATUS OF ADJACENT LAND Cainari City Council decision No.4/1 of 19 March 2008 sets out the free transfer of 23.44 ha

of land under the state property for the establishment of an industrial park. The land

transfer was performed by Government Decisions no. 988 of 26.08.2008 on the

establishment of the industrial park in Cainari.

Since the adjacent land has not been registered at the Real Estate Cadastre, the records

show that the tract of land is still property of the Cainari town hall, although legally it is

state-owned. Paragraph 371 Law no. 1543 of 25.02.1998 on real estate cadastre stipulates

the situations where the property right is granted without a cadastre record if they

originate through succession, accession, enforced sale or normative act, expropriation or

pursuant to a court decision.

Thus, Cainari industrial park provides two components at the moment:

State-owned adjacent land, that must be recorded in the real estate cadastre,

SE "Industrial Park Cainari" as the management company of the park, created and

enforced by Government Decisions no. 988 of 26.08.2008 on the establishment of

Cainari industrial park.

No studies on the establishment of the industrial park in 2008 have been identified to

analyse the viability of an industrial park in Cainari. Consequently, a feasibility study was

proposed to determine the preservation, reorganization or liquidation of the esblished

park.

Three options will be analysed in formulating the concept of the Cainari industrial

park:

1. Conclusion of a commodatum contract with an investor on the free use of the

adjacent land for a period of 30 years. The investor is expected to invest in the

infrastructure construction.

2. Adjacent land rental agreement with an investor for 30 years. The investor is

expected to invest in the infrastructure construction.

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23

3. Establishment of the industrial park based on the state-owned adjacent land, using

different cooperation and association examples laid down in the Law on public-

private partnership.

All three options involve the creation and development of the industrial park by a private

investor. The adoption of any of these solutions implies the liquidation of SE "Industrial

Park Cainari", which did not perform activities since its establishment in 2008 and did not

demonstrate the capacity to develop the industrial park received under administration.

2.2.2 CONCLUSION OF A COMMODATUM CONTRACT WITH AN INVESTOR ON THE FREE USE OF

THE ADJACENT LAND FOR A PERIOD OF 30 YEARS. THE INVESTOR IS EXPECTED TO

INVEST IN THE INFRASTRUCTURE CONSTRUCTION. Commodatum contract refers here to a gratuitous loan offered into use by the state (bailor)

to a private investor (bailee) which binds the latter to return the concerned tract of land

after the commodatum term expires.

Article 859 of the Civil Code stipulates the gratuity of the commmodatum agreement: "one

party (the bailor) offers a good into gratuitous use". The gratuitous character of the

commodatum agreement distinguishes it from the rental agreement (which implies a

remuneration for the good used).

The commodatum contract binds the private investor to perform the technical and

production infrastructure investments without the right to request the return of the

amount invested. The investor does not have the right to request the value of the

investments performed since they will constitute part of the IP adjacent land.

Article 862 of the Civil Code stipulates that the investor is bind to use the land according to

its land-use provided in the contract. Contract non-compliance entails compensation of

damages or termination of contract.

Compliant with the Civil Code, the investor is not granted the right to retain the adjacent

tract of land even if it has public debts, as he was not entitled to its ownership right. The

Code establishes in this way, legal limits for the use the land under an industrial park.

The gratuitous characteristic of the commodatum will establish the balance between the

missed revenues of the state and the investment amount incurred by the investor. In this

regard, the rental value of the lease term for 30 years is expected to equal to the

investment amount performed for the establishment of the Cainari industrial park..

As evidenced in Table 4, the annual rental revenue of the 23.44 ha adjacent land7 would

amount cca 3 million lei.

7 See p. 2.2.9 Technical and production infrastructure to be connected to the industrial park.

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Table 4 Rental revenue for 1 ha public property, normative price, MDL

The normative price of 1 ha land for sale 1 291 680

Normative lease price for 1ha land, 10%* 129 168

Total annual revenue land lease, 23,44 ha 3 027 698

*art. 10, p. 8 Law No. 1308 of 25.07.1997 on normative price of Land and Procedure for

Sale and Purchase of Land. The 10% quota represents the maximum absolute value

provided by law.

Anticipating a 5% annual growth of the normative price we can forecast the accumulated

lease revenue for the 23.44 ha land for a 30 year-term, as shown in Table 5.

Table 5 Cumulative lease revenue for the 23.44 ha IP adjacent land for a 30-year term

Years 1 2 3 4 5 6 7 8 9 10

Revenue 1-10

3 027 698 3 179 083 3 338 037

3 504 939 3 680 186 3 864 195 4 057 405 4 260 275 4 473 289 4696953

Years 11 12 13 14 15 16 17 18 19 20

Revenue 11-20

4 931 801 5 178 391 5 437 310

5 709 176 5 994 635 6 294 367 6 609 085 6 939 539 7 286 516 7650842

Years 21 22 23 24 25 26 27 28 29 30

Revenue 21-30 y

8 033 384 8 435 053 8 856 806

9 299 646 9 764 628 10 252 860 10 765 503 11 303 778 11 868 967 12 462 415

Total MDL

201 156 760

Accordingly, the cumulative rental revenue would amount approx. 202 million lei.

Table 6 depicts the situation where the state would decide on selling of the tract of land in

the 29th year of the lease:

Table 6 Adjacent land sale revenue in 29 years, MDL

Normative sale price 1ha land in 2011 1 291 680

Normative price annual growth 5%

Sale normative price for 1ha land 2041, in 29 years 5 582 567

23,44 ha land sale revenue in 29 years 130 855 370

Accordingly, the state will lose cca 332 million lei revenues (lease+sale) during the 30

years of the park existence, since the gratuitous loan provides that the state can not

exploit the sources of income presented in Tables 5 and 6.

At the same time, the state will benefit of other income sources provided by the activities

performed by the park and its residents, as shown in the Table 78.

Table 7 Profits generated by IP Cainari in 30 years, MDL

Duties and taxes to the budget 870 000 000

Payroll payments within the IP 1 504 000 000

8 Please refer to p. 2.7.1 Impact Assessment, Table 31

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The economic and financial impact of the industrial park will exceed 2.4 billion lei, direct

sources of income provided for the state and its citizens. This alternative prevails over the

option for the rental of the land destined for the creation of the industrial park.

2.2.3 RENTAL OF THE ADJACENT LAND BY AN INVESTOR FOR A 30 YEAR-TERM, EXPECTED TO

INVEST IN THE INDUSTRIAL PARK INFRASTRUCTURE Rental of the state-owned adjacent land represents one of the options for the creation of

the industrial park Cainari.

A lease contract implies that the state (owner) submits the adjacent tract of land of the

industrial park to the investor (managing company) under temporary use and possession

in return for a rental payment.

Whereas SE "Industrial Park Cainari" is the management company of the industrial park in

Cainari and was transferred the state-owned adjacent land, the lease of the land can occur

according to two scenarios:

1. Adjacent land rental, where the SE „Industrial park Cainari” acts in the capacity of lessor.

Here the SE „Industrial park Cainari is listed as a vicious intermediary between the investor

and the park residents, as expressed graphically below:

The existing SE "Industrial park Cainari" and the adjacent land transferred by the state in

its registered capital will minimize the probability to indentify an investor to invest and

develop the industrial park Cainari, for the following reasons:

Both the investor and the park residents shall incur additional costs related to the

operational activity of SE "Industrial Park Cainari", since the revenues of SE

"Industrial Park Cainari" are constituted (according to GD 988 of 26.08.2008 on the

establishment of Industrial Park Cainari) from the rental payment for the tracts of

land, technical and production infrastructure objects, the 0,1% of the residents total

SE „Industrial Park

Cainari

Land transfer

Land

Rental

Industrial

park

residents

Foreign investor

IP developer

Lease

in parcels

State

Figure 8 IP Cainari adjacent land rental by SE „Industrial park Cainari”

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sales amount; the payments and fees for the participation in competitions for

obtaining the right of park resident and resident registration.

The term for the establishment of the industrial park Cainari was set at 15 years;

2. Liquidation of SE "Industrial Park Cainari" and the direct lease of the adjacent land to a

private investor. The investor shall be assigned the managing role of the park and will be

able to lease the parcelled tract of land to the potential residents. The implementation of

this scenario can lead to the de facto establishment of Cainari industrial park, as long as it

did not perform any economic activity since its creation in 2008.

The significant capital investments related to the technical and production infrastructure

incurred by the investor/developer and the future residents must be reflected in the lease

contract. The amount invested shall determine the range of incentives granted, calculated

according to the same algorithm described in the division 2.2.2 on the commodatum

agreement.

Unlike the situation of commodatum, the investor will incur both the capital investments

and the lease payments for the adjacent land use.The investor shall recover the

investments performed for the establishment of the industrial park on the account of the

positive financial result of the management activity carried out within the industrial park.9.

2.2.4 THE ESTABLISHMENT OF THE INDUSTRIAL PARK BASED ON THE PUBLICLY-OWNED

ADJACENT LAND, USING DIFFERENT COOPERATION AND ASSOCIATION MODELS UNDER

THE LAW ON PUBLIC-PRIVATE PARTNERSHIP

The establishment of industrial park Cainari based on public-private partnership refers to

the establishment of an industrial park based on the publicly-owned adjacent land, wholly

or partly funded by a private investor or via the financial resources attracted by him, using

different cooperation and association models set out in the Law no. 179 of 10.07.2008 on

public-private partnership.

The cooperation and association models applicable to the creation of the industrial park in

Cainari in a legal relationship of public-private partnership, are set out as follows:

Fiduciary management. A theoretically viable solution, given that fiduciary

management has not been yet implemented in the Republic of Moldova.

Consequently, Moldovan legislation does not provide regulations and acts regulating

the fiduciary management of the state patrimony. Thus, the establishment of the

industrial park via fiduciary management requires respective law adjustments.

Adjacent land rental. The implementation of the public-private partnership through

a lease contract implies the transmission of the adjacent land under temporary

possession and use. The private investor shall be responsible for the land use in the

park creation process. The contract price is determined by the parties and cannot be

9 Please see p. 2.5 Economic and financial forecast on the managing company of the IP

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lower than the minimum annual rent amount established in the state budget annual

law. This fact excludes the use of incentives for the reduced lease payment by

applying the reduction coefficient (article 12, Law no. 182 of 15.07.2010 on

industrial parks). Moreover, the lease relationships may be established without

setting up a public-private partnership10, that can act out as a bureaucratic barrier

in creating the industrial park Cainari.

Public-private partnership can also be established through the association of a

public partner with a private entity. This can be achived either under a civil

contract, without creating a legal person, or by creating a commercial company (LLC

or JSC), based on joint capital (public-private). The lack of any experience related to

this type of contractual relationships may compromise, however, the establishment

of the industrial park Cainari.

2.2.5 OPINIONS

The following table outlines the advantages and disadvantages of each of the methods for

establishing the industrial park, described in p. 2.2.2 -2.2.4.

The establishment of the industrial park by transferring the adjacent land into use through

a commodatum agreement appears as the optimal solution. The option of leasing the

adjacent land looks also viable. However, it depends on the negotiation outcome with the

potential investor and the attractiveness of the industrial park Cainari. The investor shall

also decide whether to accept these payments in his operational activity.

Table 8 Methods for establishing the Industrial Park in Cainari, advantages and drawbacks

Commodatum Rental Public-private partnership

Attractiveness to investor

++ + -

Difficulties in performing the transaction

Low +

Low +

Average -

Possibility to use the 0,3 reduction coefficient for the land use payment

++ + -

Prior experience in performing transaction

+ + -

Transaction accomplishment term

1 month +

1 month +

3> months -

Complexity of carrying out the monitoring the implementation of contractual clauses

Low +

Low +

Average -

Level of state costs related to the transaction

Low +

Low +

High -

Total advantages 9 7 0

Note: + advantage; - drawback

10 Refer to p. 2.2.3

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2.2.6 STEPS TO CREATE THE INDUSTRIAL PARK IN CAINARI11

Step 1. Identification of an investor to perform investments intended for the construction

of the necessary infrastructure along with carrying out the industrial park management.

Step 2. The repeal of Government Decision no. 988 of 26 august 2008 on the establishment

of the industrial park Cainari.

Step 3. Liquidation of SE „Industrial park Cainari”.

Step 4. The repeal of Cainari City Council decision no. 4/1 of 19 march 2008 on the free

transfer of 23,44 ha of land from the reserve fund of Cainari under the state ownership, in

order to set up an industrial park. Preservation of the IP adjacent land under the ownership

of the town of Cainari.

Step 5. Conclusion of a commodatum agreement on the transfer under free use of the

adjacent land by the public administration to the identified investor. The transfer of the

right to use the land destined for the park to a private investor can also occur as a result of

direct negotiations for a lease agreement.

Step 6. The resolution of the Government Decision regarding the establishment of the

industrial park Cainari and the assignment of the identified investor with the industrial

park - the management company.

Step 7. Commencement of the investment process for the construction of technical and

production infrastructure. Identification of IP residents.

2.3 ECONOMIC ACTIVITIES DESCRIPTION AND ASSESSMENT OF INDUSTRIAL PARK

RESIDENTS ATTRACTION POSSIBILITIES

2.3.1 SOUTH DEVELOPMENT REGION (SDR) ECONOMIC ADVANCE SDR is mostly an agrarian region. Annually, the region is accounts for almost 40-50% of the

national grapes output, 30,3% of the national cereals output and 15-20% of the national

sunflower production. There are 3 economic zones located in SDR: Free Entrepreneurship

Zone “Taraclia Production Park”, Free Entrepreneurship Zone “Tvardita” and Free

International Port “Giurgiulesti”.

12% from Moldova’s biggest companies are located in SDR. The most economically

dynamic districts are Cahul, Caușeni, and Ștefan Vodă. There is a visible small business bi-

polar economic development: Cantemir, Leova, Basarabeasca and Taraclia districts provide

for nearly 10% of these companies. Other 4 districts provide for the other 90% of the

regional businesses.

Services are increasing their share in GDP. Retail and services are ascending. From a local

perspective, the main service providers are government and non-government institutions

and organisations and regional development bodies.

11

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Education institutions are generally fulfilling local needs. Preschool education institutions

need are covered 72,1%. There is a better picture for the primary and gymnasium

education system. These institutions cover 96.9% of the local needs, compared to 99.88%

nationwide. Gymnasium institutions are particularly 99.04% available compared to 96.9%

nationwide. Education infrastructure is complex in SDR and prepared to provide education

at different levels.

Table 9 Educational infrastructure in SDR

Type of educational institutions Share per republic

266 preschool institutions 20,5% 270 day schools, gymnasiums, high-schools 17,4% 12 secondary-vocational education institutions 15% 3 Universities 9,67%

In 2004, there was drop in the number of available places in hospitals as well as in the

hospital beds - population number ratio, lower than the national average. There were 62.4

available places for 10 000 inhabitants nationally and only 37 available beds for 10 000

inhabitants in SDR. The mostly doctor-covered districts were Cahul, Căuşeni and Stefan

Voda, where one can find the largest number of medical institutions.

2.3.2 CAUSENI DISTRICT ECONOMIC DEVELOPMENT The south-east located district of Causeni is bordering Ukraine. Thus, Causeni has 4 border

villages. There is also a customs post in Saiti. The district is neighbouring Ştefan – Vodă,

Anenii – Noi and Cimişlia districts.

The district surface is 116.3 thousand ha, of which 93.7 thousand ha are agricultural lands

(80% of all surfaces). Arable land covers 70.6 thousand ha, vineyards - 5.2 thousand ha and

orchards are 4.3 thousand ha. The hydrological network is constituted form Botna and

Nistru rivers. The next table showcases the economic and social progress of Căuşeni

district.

Table 10 Căuşeni district main economic and social indicators

2006 2007 2007 2008

Inhabitants, thousand 93,4 93,6 92,9 92,7

Industrial output, % compared to the previous year 59,2 61,1 120,1 75,5 Fixed capital investments, % compared to the previous year 73,8 69,5 93,5 44,5

Retail, % compared to the previous year 116,1 107,6 119,5 93,8

Population services, % compared to the previous year 112,8 104,1 95,7 97,5

District budget revenue, % from overall revenues 35,1 30,3 23,8 20,8

Real salary, % compared to the previous year 135,2 117,1 119,4 117

2.3.2.1.1 Investment activity

According to the Regional Investment Performance Rating, Causeni district is the 27th out

of 38, which is a relatively low score, triggered by the very low investment stability score

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(#31) and a very poor investment diversity (#28). Same time, the district is relatively

competitive in historical investment performance (#10), determined by the per-capita

private investments growth rate from the early 2004-2008.

Table 11 Foreign investments stock, Causeni district

Foreign capital companies, units

Foreign capital

companies social

capital,

thousands lei

Net Foreign

Investment flow,

thousands lei

Foreign

Investments

stock, thousands

lei

15 40229 30841 96716

The structure of Causeni district private investments showcases the mainly agrarian

economy profile: these investments account for 21% of the overall private investment flow.

(See next figure). It is worth mentioning the relatively high share of transport and

communications investments share (24%), which is a strong premise for the industrial

sector development. This sector presently accounts for only 7% of regional economy. The

high investment rate in transports will ensure a stable local economy in case large

investments shall emerge within the infrastructure of the industrial park, providing

resources for transportation needs, supply chains an import-export transactions .

Figure 9 Activity break of private investments in Căuşeni district, %

The overall private investment trend for Causeni district before the economic downturn is

negative (see next figure), which stresses the need for decisions aiming to change the

course of the things, like creating industrial parks.

In 2008, Causeni investments to SDR investments ratio was only 83,1% (1031,3 lei against

1240,7 lei per capita). Same time, per capita foreign investments balance was 4,5 times

bigger compared to the regional statistics (1311,7 lei against 375,4 lei).

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Figure 10 Fixed per capita investments in 2010, Căuşeni district, MDL

Causeni district fixed investments switched to a positive turn in 2010, which is an

extremely positive evolution in terms of the construction of the industrial park (see table

below). The exhilaration of having a 20-22% increase in investments as compared to 2009

shows an investment environment enhancement, bringing private investors to consider

Căuşeni district as a potential investment destination. Initiating the industrial park may

catalyze the whole process.

Table 12 Fixed capital investments in 2010, Causeni district

Fixed capital investments

Total, million lei

Of which

% against 2009 total State budget

Local public administration

budget

State budget

134,4 8,9 19,2 106,3 119,6

Construction works

Total, million lei

Of which

% against 2009 total State budget

Local public administration

budget

State budget

64 6,2 14,1 43,7 100

Table 13 Construction investments in 2010, Causeni district

Construction contracts value Dwellings

Total millions lei % against 2009 total Total s.m.

surface Of which on behalf

of population % against 2009 total

26,2 de 2,1 ori 2051 2051 123,4

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In 2010 there was also a positive jump in advancing from the economical crisis, especially

in goods transportation, which is a direct attribute to fixed capital investments growth and

contributes to raising interest towards the industrial park (see next table).

Table 14 Goods transportation in 2010, Causeni district

Transport companies goods transportation

Thousands tones % against 2009 Thousands tones km

113,2 de 5,1 ori 37240,7

Căuşeni district is additionally endowed with a series of geographic and infrastructure

pluses advantaging the creation of the industrial park, like the access to Bender customs

and other communication means (national roads density is 27,7 % bigger the national

average), the good soil quality which served as an attraction to several large foreign

investors in the agrarian business (e.g. IM „Elevator Kelley-Grains”, „KWBCROUP”SRL, SA

„Ghermes-Service” etc.).

2.3.2.1.2 The agriculture

The arable soil is more than 28% seeded with autumn cereals:

Wheat - 17662 ha,

Barley – 6568 ha,

Rape – 4807 ha.

Soil fertility is 62 compared to 59 for the SDR. There are also less eroded soils as compared

to the 27,4 % average nationwide, which ranks Căuşeni district the third in the SDR in the

harvest yield breakdown.

Figure 11 Global and average yield for agricultural crops, Căuşeni district

2.3.2.1.3 The industry

Căuşeni is rather a non-industrialized district, which brings back the idea of creating the

industrial park. 93,5% of the local industrial activity is manufacturing, which is a historic

legacy of a district mainly involved in agriculture, mostly wine industry, cannery, milk

industry and flour production. Per capita industrial production is 2 times lower against the

regional average (770.2 thousands lei against 1614,1 thousands lei). The industry is highly

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33

fragmented into a large number of small companies. This way, despite an above the region

average of industrial companies (108 companies against 94 companies) the incumbent

production output is relatively small (0.7 mil. lei per company against 1.05 mil. lei per

company in SDR). The situation can be positively enhanced through a concept of small

companies industrial agglomeration into an industrial park, which can stimulate business

expansion and new companies entering the industry business in the region.

Figure 12 Industrial output, 2007-2010, mil. lei, Căuşeni district, SDR, national economy

59 71 50 97

810 876 625 661

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010

RDS

Căuşeni

810 876 625 661

29448 29654 25286 27057

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010

Economia Naţională

RDS

From the latest figure on can observe growing industry potential for Căuşeni, SDR and

national economy. In 2007-2008, Căuşeni district had better industry output delivery

(20% annual growth) as compared o the SDR (+8%) and the national economy as a whole

(0,7%). 2009 saw industry output exploding for Căuşeni (+29,68%) as well as for SDR

(+28,67%) and the national economy (+14,73%). Out of the economic downturn of 2007-

2009, Căuşeni succeeded to almost double its industrial output (93,2%) in 2009-2010,

performing well above the SDR (+5,7%) and the national economy in particularly (7%).

This brings the great industrial potential that Căuşeni even-though it is considered an

agricultural district. Building the industrial park can only contribute to this highly positive

trend.

2.3.2.1.4 Entrepreneurship

Data from the National Statistics Bureau shows that 332 companies have legally activated

in Căuşeni district in 2009 (see table).

Table 15 Companies, Căuşeni district, 2005-2009

Big companies

2005 2006 2007 2008 2009

6 5 5 8 9

Medium-size companies

2005 2006 2007 2008 2009

26 26 21 19 18

Small companies

2005 2006 2007 2008 2009

69 67 75 82 88

Mico-companies

2005 2006 2007 2008 2009

203 243 274 309 332

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During the 2005-2009 period, the number of companies reporting their economic activity grew by

49%, from 304 to 447 units. Small and medium-sized enterprises (SME) accounted for 24%

from total, of which micro-companies accounted for almost 74%. Still, their share in total

sales volume and total number of employees was near 8% and 17% respectively. There is,

somehow, a balanced picture between the number of employees and annual sales volumes

of large companies and small/micro-companies.

SME-s will probably benefit the most from the creation of the industrial park, which is

pretty acceptable, and there will also be a downgrade in the risk of having a large company

going bankrupt and impacting the whole economic system due to its large contribution to

the total production output and the prominent share of employees.

We must recall that Taiwan begun industrializing by having SME outputting over 90% of its

industrial production averaging 15 employees per company. From this point of view, the

concept of developing the SME sector is of a high importance for countries like Moldova,

undergoing reforms and aiming to further development.

Table 16 Breakdown of total sales/employees by type of company, Căuşeni district

Big companies

Average nr. Of employees Sales revenue, mln. lei

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

2 353 1 950 1 837 1 804 1 876 199,75 166,47 319,69 477,79 421,77

Medium-size companies

Average nr. Of employees Sales revenue, mln. lei

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

2 252 1 865 1 473 1 300 1 203 115,79 154,77 162,33 237,13 148,15

Small companies

Average nr. Of employees Sales revenue, mln. lei

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

1 267 1 054 1 246 1 349 1 303 143,8 156,94 247,84 283,44 234,24

Micro-companies

Average nr. Of employees Sales revenue, mln. lei

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

551 751 807 866 898 32,96 58,18 63,52 73,75 69,7

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Figure 13 Total sales and number of employees ratio by type of companies breakdown

2.3.3 TOWN OF CAINARI SITUATION

Presently, there are 140 companies operating in Cainari. Additional 30% from 140 are

registered and are set to begin their activity. There are also 85 farms (farming households).

The largest companies are: the winery which recently underwent a bottling conveyor

upgrade, and the cereals elevator which rebound its activity after changing the owner.

„Persolvit-Prim”, with more than 500 employees is also a noticeable company activating in

the agriculture sector.

The town is a regional regular host for agricultural fairs and exhibitions. Tourism has good

perspectives due to curative water resources and accommodation capacities of the local

sanatorium. An agricultural market, a public catering unit and the local branch of a

commercial bank are also implanted in Cainari.

The structure of 4284 ha of Cainari land is as follows:

arable area - 2073 ha,

Inside town land - 524 ha,

Lakes -19,5 ha,

Pastures - 611 ha,

Forests - 524 ha, (Moldsilva).

2.3.4 DESCRIPTION OF LOCAL HUMAN POTENTIAL FOR THE INDUSTRIAL PARK ACTIVITY SDR encompasses 8 districts: Basarabeasca, Cahul, Cantemir, Căuşeni, Cimişlia, Leova,

Ştefan-Vodă, Taraclia covering 24% of the national area. Population is 15% of the total

national population. Town infrastructure consists of 10 towns without municipality status

(of which 8 are district capital) and 278 rural localities organized in 177 communes. The

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SDR towns are: Basarabeasca, Cahul, Cantemir, Căuşeni, Cainari, Cimişlia, Leova, Iargara,

Ştefan-Vodă and Taraclia. The region's largest town is Cahul. As compared to other

development regions in Moldova, the SDR is less industrialized. The land is one of the most

important natural resources; the surface of agricultural land is 74% from total. The context

is consistent with the aim of raising the industrial output in the region.

2.3.4.1 SDR human potential

SDR population is 15% from the total Moldova population. The population natural increase

is decelerating to the lowest level among other development regions. The average

population density is 75 persons/km2, the lowest as compared to other regions.

Economically active inhabitants are almost 60% of total. More than 60% of them are in the

agriculture, 9% in education, 8,7% in trade, 8,6% in industry, 4,9% in transport, 4,4% in

health system, 2,3% in construction etc. As compared to the national picture, people in

agriculture is more considerable than nationwide. The following table showcases some

statistical data about SDR population.

Table 17 Demography situation in SDR

524,5 thousand inhabitants (94% against 1989) Density- 71 pers/km2 Urbanization: 26% Economically active people: 301,7 th. persons (60%). 524,5 th. inhabitants (94% against 1989) Density- 71 pers/km2 Urbanization: 25,1%

Te next figure reflects some base population statistics for SDR. People capable of working

are relatively numerous, which is a plus for the industrial park creation.

Figure 14 Inhabitants according to age categories, development regions breakdown (% of total)

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2.3.4.2 Căuşeni district human potential

According to the 2004 census, Căuşeni district population is 90612 persons, almost 3%

from Moldova population, distributed in two towns, 40 communes and villages. There are

27 city and village halls. Urban population was 24,2% (21,941 persons).

Figure 15 Căuşeni district population

38,6%

61,4%

24,2%

75,8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Urban Rural

Raionul Căuşeni

Pe republică

48% 49%

52% 51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pe republică Raionul Căuşeni

Femei

Bărbaţi

The previous figure outlines the generally rural population which is also well balanced

through male/female ratio: 48%/52%. According to age groups, Căuşeni population has

the following profile:

Figure 16 Căuşeni district population, breakdown by age groups

0 2000 4000 6000 8000 10000

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 34

35 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

75 + Număr locuitori

0,00 2,00 4,00 6,00 8,00 10,00

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 34

35 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

75 +Ponderea în % din total locuitori

Nearly 63% of Căuşeni district population is in the working age population group, which is

65% from all district male population and 60% from all district female population. The

population average age is 35 years. This way, population is not an impediment for

implementing industrial parks in Cainari or other places in Căuşeni district.

Căuşeni district is one of the most affected by emigration. Stable population is about 15.6%

more than the present population. This is one of the highest level reported for Moldova,

with a nationwide average of 9.3%. This process has considerably diminished the pressure

on the local working force. Unemployed people vs. working population ratio is 0,8%

against 0,86% nationwide. The low unemployment may be explained by the fact that large

part of employees is in the retail sector being unofficially employed. In result, locals are

consuming more than the regional average (2008 retail is 114,6% from the regional

average) despite a 5,9% lower salary as compared to the region (1647,1 lei against 1750,3

lei).

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Implementing an industrial park in the region would impact emigration and would

increase the number of people in industry, which is a greater value-added sector, including

better salaries. It would also balance the number of employees in agriculture and retail.

The anticipated cost of working force for potential investors and park residents seems to

be convenient. On average, the net unqualified employee salary would be 1600-2000 lei.

More qualified personnel would cost 3200-3500 a month net.

The average salary in Căuşeni district was 2300 lei in 2010, increasing at a slower pace

than the annual inflation of 8% (see next table). This can also be considered as an

advantage for building an industrial park in the region (Cainari).

Table 18 Average salary in Căuşeni district in 2010

Development regions/municipalities, districts

Average monthly salary in: Increase rate January-December, lei (preliminary data)

December, lei January-December 2010 versus January-December 2009

December 2010 versus 2009

South 2110,9 2399,9 108,7 102,9 Basarabeasca 2531,9 2735,9 105,7 100,8 Cahul 2288,6 2543,3 108,3 106,2 Cantemir 1899,5 2504,4 106,2 99,8 Causeni 2080,1 2227,6 108,0 100,0 Cimislia 2039,1 2433,7 111,5 107,6 Leova 2054,5 2165,7 112,9 100,7 Stefan Voda 1893,5 2134,4 106,0 92,9 Taraclia 2012,1 2372,4 112,5 111,3

Education is provided by 9 high-schools, 23 general schools, 5 gymnasiums, 1 school of

sports, a Creation Center, Sălcuța Teaching Center, 2 family-type orphanages, one auxiliary

school in Tocuz, 2 vocational schools, 33 preschool institutions. There are 197

professionals in the preschool education system teaching 2485 kids.

2.3.4.3 Cainari town population description

Cainari population is nearly 4700 inhabitants. The ethnic composition is 97% Moldovans,

3% Ukrainians. Gender breakdown shows 52% women and 48% men. 5 villages are 5-7 km

distance displaced around Cainari. Their aggregated population is nearly 13000 people.

Generally, there are 28000 inhabitants in Cainari region (ex Cainari district). The education

system in Cainari consists of 2 preschool institutions, a gymnasium teaching 1100 students

and „Alexei Mateevici” high-school teaching 1100 students. It is easily observable that over

40% of the town population consists of students (2000 persons), which is explained by the

fact that Cainari is a regional education pole, teaching students from different proximate

areas. In order to estimate the potential human resources available in the framework of the

industrial park, calculations were made for population within a 30 km radius around

Cainari.

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Figure 17 Estimated working force dispersion

Table 19 Human potential in the Cainari 30 km radius

Locality

Available capable of

work population, pers. Distance to Cainari, km

Căuşeni town 30000 35

Anenii Noi town 9000 31 Within 30 km distance 35000 30

65% of the region population is economically active, which is a positive input to having the

industrial park located in Cainari.

2.3.5 INDUSTRIAL PARK ACTIVITY REGIONAL INFRASTRUCTURE SDR enjoys a dense and extended road network with intra- and inter-regional access ways.

The region is also playing a potentially important role in ensuring Moldova access to Black

Sea side countries. Public roads length is 22.3% of total national public roads. Out of these

roads, 23.8% are national rigidly paved roads and 21.5% are local roads out of which 20%

are also rigidly paved. There are also roads connecting all urban areas.

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Public utility infrastructure is less present in SDR than nationwide. Towns are regularly

better with infrastructure than villages. Differences are obvious in water access, drainage,

roads, natural gazes etc.

The gas supply network is expanding each ear, but it reaches fewer consumers than the

national average. In 2005, only 34.2% households had access to gas supply network.

Taraclia district boasts the highest level (84,2%) while Leova registers the lowest level

(2,8%).

The drainage network covers only 12% of the region, given that big locations such as the

town of Cainari do not feature such systems.

Share of the residential accommodation supplied with:

natural gas (34,22%)

aqueducts – (44,5%)

drainage installations – 12,8%

transportation: auto, rail road; prospective: air, naval

volumes of loads transported – 0,1 tonnes/person

Seven checkpoints and border crossing points operate in the region: road customs -

Giurgiulesti, Cahul, Cantemir, Basarabeasca, Saiti (Causeni), Palanca (Stefan Voda) and

Tudora (Stefan Voda).

2.3.5.1 About Causeni

The total area of the district is 116,300 ha, including 93,700 ha of agricultural land or 80%

per total district. Arable land totals 70 600 hectares, vineyards - 5.2 hectares, orchards - 4,3

ha. The hydrologic network is represented by Botna and Nistru rivers.

The 34 km high voltage line Anenii Noi - Causeni has been recently put into operation.

Alternative electric supply actions have been carried out serving consumers residing in

Stefan Voda district, Causeni district (22 locations per total).

The district of Causeni features a network of auto roads and railroads of national and

international importance. The total length of the road network expanding throughout the

district covers 387,3 km, including 190,4 km of modernized roads.

A total length of 253,072 km of the roads expanding within the district of Causeni is being

served by JSC "Drumuri-Causeni", including:

asphalt concrete – 141, 074 km

Pavement – 2,8 km

asphalt macadam – 18,59 km

Crushed stone – 20,73 km

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Profiled ground – 24,03 km

National roads – 110, 157 km:

Asphalt concrete – 79,621 km

Pavement – 1,8 km

Asphalt macadam – 13,86 km

Crushed stone – 0, 670 km

Gravel – 14,206 km

Local roads – 142,915 km:

Asphalt concrete – 61,453 km

Pavement – 1,0 km

Asphalt macadam – 4,73 km

Crushed stone – 20, 06 km

Gravel – 31,642 km

Profiled ground – 24,03 km

The share of the gas-supplied localities by 2006 constituted about 41,7% as per the final

available data provided by the Causeni City Council.

3.4.5.2 About the town of Cainari

The town of Cainari has direct access to the railroad. The railway consists of seven railway

lines.

The locomotive depot is in a great operating condition at the moment. The railway

infrastructure is highly maintained due to the new line connecting Chisinau and the

annually perfomed maintenance.

The railway enterprise currently employs 70 people, residents of the town of Cainari and

nearby locations.

The railroad performs services of goods transportation to Chisinau, Bender, Cimislia, Reni-

Basarabeasca, Giurgiulesti.

The road and connection network of Cainari town consists of:

National Auto road R-32, Puhoi-Cainari-Salcuta (asphalted)

The distance from Cainari to Chisinau is 55 km. This road connects the following

directions: Causeni, Cimislia, Bender, Palanca, Saiti.

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The territory of Cainari town is crossed by high voltage lines of 100KVT, 35KVT and

10KVT. The power station serving the whole district of Cainari is located nearby the

railway station.

Fixed telephone, CDMA mobile telephony and internet access through fibre optic cable

services are provided the JSC "Moldtelecom" subsidiary in Cainari. The subsidiary currently

employs 60 persons.

The main economic agents, institutions and organizations operating in Cainari are:

15-thousand ton elevator.

Wine factory endowed with wine bottling line.

JSC „Banca de Economii”.

SE „Poşta Moldovei”subsidiary .

296-bed Family Medicine Center.

Theoretical Lyceum „Alexei Mateevici” attended by 1260 students.

Three kindergartens totalling 580 places.

Subsidiary of the National Social Insurance House.

Two petrol stations.

Cainari territorial cadastre body.

Division of population evidence and documentation.

Eight artesian wells supply the town of Cainari with drinking water:

Water-supply station of 2000 meter cube per hour.

Sewerage network of 7 km length.

Wastewater treatment station of 400 cube meters and the wastewater pumping

station

It may be noted that Cainari town has the entire necessary infrastructure to initiate the

construction project for an industrial park.

2.3.6 TECHNICAL AND PRODUCTION INFRASTRUCTURE TO BE CONNECTED TO THE

INDUSTRIAL PARK The industrial park Cainari will be located within the territory of Cainari town and is not

expected to jeopardize the activities of the town and its residents.

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The territory of the adjacent land covers an area of 23,44 ha located on the outskirts of the

town. The following figure represents the cadastre plan of the tract of land adjacent to the

future industrial park.

Figure 18 Adjacent land of the Industrial park

Figure 19 (a;b) shows the spatial location of the future industrial park in Cainari, in relation

to the main transportation networks. The figure also indicates the possibilities to expand

the industrial park:

Figure 19 Spatial location of the Industrial Park in Cainari (a)

Railways to Chisinau, Bender, Cimislia, Reni-

Basarabeasca, Djiurgiulesti

To Chisinau

To Ialoveni

To Tighina

IP

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44

Figure 20 Spatial location of the Industrial Park in Cainari (b)

Staţia de epurare

PI or. CăinariIP Cainari

2.3.6.1 Infrastructure networks

The electricity supply line lies at a 300 m. distance from the industrial park. The line can be set to generate energy according to the necessities.

The sewerage network lies at a 500m. distance from the industrial park The drinking water line lies at a 300 meter distance from the industrial park. The industrial park has direct access to the main road. However, in order to prevent

the transportation of goods and other heavy throughout the town, it is recommended the construction of a bypass measuring 2580 meters beginning at the park boundary.

Gas-connecting pipes with an 80-100mm diameter located at a 500m distance from the boundary of the park.

The Cainari town hall is prepared to allot, if required, a building for the park administration and a 5-story building with hotel and accommodation services intended for the potential employees of the industrial park.

2.4 ASSESSING THE VIABILITY OF CREATING AN INDUSTRIAL PARK IN THE TOWN OF

CAINARI, ACCORDING TO THE UNANIMOUSLY RECOGNIZED CRITERIA

In order to justify the location selection of the industrial park in Cainari, taking into account

a potential investor/developer, there should be performed an evaluation based on a set of

predetermined criteria.

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45

In this feasibility study we will use a set of general evaluation criteria proposed by the

Urban Land Institute12 (http://www.uli.org/).

The assessment criteria used in evaluating the location of the industrial park Cainari were

divided into four major categories:

Table 20 The list of criteria for assessing the IP location, Urban Land Institute

I. Aspect general 1. Compliance with regional and local development plans 2. Zoning 3. Division into lots 4. Topography 5. soils/drainage

II. Environmental aspects 1. Environmental requirements in the construction of IP 2. Potential environmental constraints

III. Infrastructure 1. Water supply 2. Sewerage/treatment systems 3. Access to internet 4. Access roads 5. Natural gas supply, electrical energy

IV. Transportation network 1. Access to highways 2. Access to airports 3. Access to railway network

2.4.1.1 General aspect

Compliance with regional and local development plans

The plan for the creation of the industrial park in Cainari must be encompassed in the

projected development objectives of the region.

Additionally, the site for the establishment of the industrial park is consistent with the

related local plans:

Community development plans;

Recreational plans;

Urban planning

Local Economic Development Plans.

Zoning

Industrial park developers are usually looking for sites intended for industrial purposes.

The need to change the purpose of the land and its zone in an industrial one constitutes a

supplementary step in the IP development. This effort requires additional time and costs.

The industrial park in Cainari will be assigned an industrial tract of land located in

an industrial type of zone.

12 Urban Land Institute’s Business and Industrial Park Development Handbook, 2008, second edition

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46

Division into lots

According to the Urban Land Institute, the ideal location for an industrial park

encompasses an area of 20-40 ha. Such surface has the capacity of meeting large scale

economic activities. The area can also be later extended. In addition, the infrastructure

networks are used more efficiently throughout larger land lots.

The industrial park Cainari will be assigned a tract of land of 23,44 ha.

Topography

Steep slopes located on a territory intended for an industrial park represent a major

drawback in that they imply additional costs related to levelling operations. Accordingly,

developers usually opt for relatively flat locations. Areas featuring slopes steeper than 15%

are generally considered unsuitable for the establishment of an industrial park.

The tract of land intended for the industrial park Cainari is a 7% slope.

Soils/drainage

The development of the industrial park implies the construction of many areas with many

impervious surfaces (paved roads, roofs, parking lots, etc.). The imperviousness of these

surfaces can lead to large rainwater accumulations. One of the key factors in this regard is

the capacity of the ground to absorb the leaking rainwater. Different soil types have

different absorbing capacity of the rainwater.

Preliminary analysis of the ground in the industrial park in Cainari revealed that it is

very well drained and therefore is able to absorb and evacuate the rainwater.

When necessary, the storm water can be collected using one of the methods, such as:

reduction of the impervious surface in the parking lots by placing gravel or special graving

materials, temporary retention basins and the retention of water in special underground

tanks. The development of the industrial park requires the conduct of a technical study on

the absorption and flow of the rainwater. The study will show if the precipitations falling

on the territory of the industrial park are absorbed and return to their natural hydrological

cycle.

2.4.1.2 Environmental aspects

Please refer to chapter 2.8 "Environmental Impact Assessment upon the establishment of

the industrial park".

Several comprehensive environmental studies will be developed during the establishment

process of the industrial park, in order to ensure the minimum negative impact on the

environment.

2.4.1.3 Infrastructure

Please refer to chapter 2.3.6 "Technical and production infrastructure to be connected to

the industrial park".

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The location intended for the creation of the industrial park has the entire required

infrastructure.

2.4.1.4 Transportation network

The territory set for the establishment of the industrial park is located 20-30 meters away

from the national railroad network. The network performs transportation of goods to

Chisinau, Bender, Cimislia, Reni-Basarabeasca, Giurgiulesti.

The road and connection networks of the Cainari town consist from:

National Auto road R-32, Puhoi-Cainari-Salcuta, paved.

The distance from Cainari to Chisinau is 55 km. This road connects Causeni, Cimislia,

Bender, Palanca, Saiti.

The following figure represents graphically the 7 border crossing points that grant Cainari

the access to the export markets - Giurgiulesti, Cahul, Cantemir, Basarabeasca, Saiti

(Causeni), Palanca (Stefan Voda) and Tudora (Stefan Voda).

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Figure 21 Access to the border crossing points – export markets of Cainari

Căinari

Giurgiuleşti

Basarabeasca

Săiţi

Palanca + Tudora

2.4.1.5 Opinions

In the following we shall present a diagram serving as a guide for the potential

investors/developers of the industrial park in that it shows the advantages and

disadvantages of creating an industrial park based on the above characteristics.

The guide will be analysed based on the following table:

Table 21 Estimate guide on the location of the industrial park in Cainari

Advantages Drawbacks One or several lots with a single owner Multiple lots with multiple owners Lot surface 20-50 ha Lot surface < 20 ha Topography – lot inclination <15% Topography – lot inclination >15%

Adjacent water networks Water networks not lot adjacent Sufficient water supply debit Insufficient water supply debit Wastewater station Wastewater station not lot adjacent Natural gas pipeline Natural gas pipeline not adjacent to the lot

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Zoning – the purpose-use change of the lot and zone is not required

Zoning – the purpose of lot and zone is required

Exploitation of a zone previously industrialized

Exploitation of zone previously unindustrialized

Lot adjacent to the national/international routes

Lot not adjacent to the national/international routes

Proximity of the railroad Far location of the railroad Less that 20% of the lot is located on groundwater

More than 20% of the lot is located on groundwater

No damp areas on the land Several damp areas on the lot Less that 25% of the lot is considered as area with specific environmental constraints

More that 25% of the lot is considered as area with specific environmental constraints

Total advantages 14 Total drawbacks 1

1.1 ESTIMATED INVESTMENT AMOUNT NECESSARY FOR THE ESTABLISHMENT OF THE

INDUSTRIAL PARK An estimation of the infrastructure costs was carried out considering the infrastructure

network situation previously described. The projected investment costs are shown in the

table below:

Table 22 Technical and production infrastructure to be connected to the industrial park

1 Investment subject Units Total,

thousand lei

2 Elaboration of a project and construction of a electric energy line supplied by feeder 6 by an existing station

300 m 500

3 Project and construction of the sewerage system, including the sewage pumping station and the 500m collector

500 m 1500

4 Project and construction of the drinking water supply system 300 m 320 5 Project and construction of a bypass road with a 2580m length 2580 m 15000 6 Project and construction of a pipeline branch with a 100mm diameter 500 m 500

7 Unprojected expenditure, 5% 890

Total, thousand lei 18710

The investment amount required for the construction of the technical infrastructure in the

industrial park in Cainari will therefore amount approximately 19 million lei.

The spatial location of the infrastructure networks are shown in the Figure below:

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Figure 22 Spatial representation of the technical infrastructure located in the Industrial park in Cainari

Gaz 12 atm

IP Cainari

Existing sewerage system

Electricity 35 KVT

Water 350 mm

2.6 THE ECONOMIC AND FINANCIAL FORECAST OF THE ACTIVITY PERFORMED BY THE

ADMINISTRATION ENTITY OF THE PARK This section will provide a forecast on the profit expected by the investor in the upcoming

30 years, as well as the minimum economic and financial conditions met by the investor in

order to take over the investment risk posed by the establishment of the industrial park.

2.6.1 HYPOTHESES (FORECASTS EXPRESSED IN EURO)

2.6.1.1.1 Investment amount

As it was mentioned previously, the investment amount projected for the creation of the

industrial park in Cainari is estimated at 1 187 500 Euro (18 710 000 lei).

The investor has the option to choose whether to invest this amount in the industrial park

for a period of 30 years or to deposit the money in a bank for the same period, assuming a

much lower risk.

The option for the bank deposit with a 5% annual interest rate during 30 years would

guarantee the capitalization of the deposited 1 187 500 Euro to 5 132 307 Euro.

Consequently, the amount of 5 132 307 Euro will de facto represent the investment amount

intended for the park, comprising the initial sum of 1 187 500 Euro and the missed

prospective profit guaranteed by the bank deposit.

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2.6.1.1.2 Operational activity of the industrial park

The industrial park Cainari is expected to feature the following operational characteristics:

The average surface area leased to an enterprise will constitute 5000sq.m.;

30 companies will reside in the industrial park.

2.6.1.2 Financial forecast – revenue assumptions regarding the managing

entity if the industrial park (investor, euro)

Table 23 Estimation of basic financial forecasts (€)

Investment amount 5 132 307

No. of residents 30

Area rented by 1 company, m2 5000

Rental term, months 360

As stated previously, the investment amount provided by the investor amounts 5 132 307

Euro, including the 5% annual interest rate. The investor will lease out the land to 30

residents, 5000 sq.m. provided for every resident. The table below presents the leasing

price for 1 sq.m. of land.

Table 24 Estimated minimum rental price of 1sq.m. of land, Euro

Investment amount 5 132 307

No. of residents 30

Area rented by 1 company, m2 5000

Total rented surface, m2 150 000

Lease term, months 360

Net expected rental profit - 1 m2/month, Euro 0,10

Taxes 30%

Minimum rental price value 1m2/month, Euro 0,14

The investor will therefore expect a minimum rental price of 0,14 euro per 1 sq.m.

The following step consists in identifying the rental price of 1sq.m. of land accepted by the

resident and determining whether the price exceeds the 0,14 euro/sq.m. expected by the

investor.

The calculation of the expected price by the resident will be performed according to the

prices stipulated by the law and the minimum rates accepted by the state regarding the

rental of public property (Law no. 1308 of 25.07.1997 on normative price and the

procedure for sale/purchase of land).

The normative price set for the land within settlements was modified three times since

2006, as shown in the following table:

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Table 25 Evolution of the land normative prices, (€)

2006 2009 2010

Degree-hectare unit, Euro 579 869 1242

As shown, the normative price increased around 21% per annum:

, where the exponent value equals to four years: 2006-2010.

The elaboration of the financial projections is determined by the normative rental prices

set for 1sq.m. of land within the industrial park, considering the anticipated increases in

the normative prices throughout the next 30 years.

A 21% annual rise can be considered as exaggerated; therefore a pessimistic rise of 5% per

annum will be taken into account.

As a result, the minimum rental price projected for 1 sq.m. of land within the industrial

park Cainari will be set at:

Table 26 Estimating the minimum rental price for 1sq.m. in the Industrial park Cainari

Current normative price, euro 1242 Average worthiness 65 Sale normative price 1ha 80 734 Rental normative price 1ha/y, 2%* 1 615 Rental normative price 1m2/y. 0,16 Annual normative price increase 5% Normative rental price 1m2/y, 5% annual increase 0,698 Up to 0,3** reduction coefficient 0,3 Final rental price 1sq.m./year 0,21

*article 10, p. 8, Law no. 1308 of 25.07.1997 on normative price and the procedure for

sale/purchase of land. The 2% quota represents the minimum absolute value laid down by

the law.

** article 12, p. e), Law no. 182 of 15.07.2010 on industrial parks.

The projections established that the minimum monthly rental price accepted by the

investor is 0,14 euro/sq.m. At the same time, the law provides that the minimum monthly

rental price for the publicly-owned land in the upcoming 30 years is set at 0,21 euro per

sq.m. The fact that the minimum rental price provided by law is well above the price

accepted by the investor diminishes the attractiveness of the business within the industrial

park.

2.6.1.2.1 Sensitivity analysis of the financial forecasts

It should be hereby conducted an analyses on the potential rental prices set by the investor

without affecting the resident's interest. In other words, the investor may gradually

increase the prices in order to maximize the revenues, while the resident will struggle to

minimize the rental costs.

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This supply-demand relationship is eloquently represented in the following table and

figure:

Table 27 Flexibility of the demand-supply upon the rental of 1 sq.m. of land in the IP

Increase of rental price 1 m2 by 20% 30% 40% 50% 53%

Rental price 1m2, Euro 0,16 0,18 0,19 0,20 0,2077

Net rental profit 1 m2, Euro 0,114 0,124 0,133 0,143 0,145 Net profit after 30 years (investment capitalization), Euro

6 158 768

6 671 999

7 185 229

7 698 460

7 852 429

Gained interest from the IP investments 5,64% 5,92% 6,18% 6,43% 6,50%

Figure 23 Rental price flexibility compared to the final rental price

Price for rent of 1sq.m, Euro

Final price for rent of 1sq.m, Euro

The calculations in the table explain that the investor may gradually increase the rental

price for 1sq.m. by 53% up to the normative price value stipulated by law. The investor

may also apply the 0,3 rental reduction coefficient, compliant with the incentives set out in

the law on industrial parks.

The investor will obtain an annual rise in the net cash flow from 5,64% to 6,50% for every

euro invested, by setting price increases. The returns generated will be higher than the 5%

interest level rate. The awarding percentage will cover the risks related to the

establishment of the industrial park.

It should be hereby noted that the 5% interest rate was intentionally used for calculations,

given that the interest rates set for 30-year deposits do not exceed 3%. The calculation

based on the 5% interest rate was intended to perform a most pessimistic forecast.

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2.6.1.2.2 Stimulating the investment amount intended for the creation of the industrial park

The state is the key entity in stimulating and influencing indirectly the investment

amount provided by the investor.

The forecasts performed in this study considered the minimum rates provided by law

regarding the land rental payments for the public land within the industrial park:

2% land rental according to the normative price of the land, although the law

provides an up to 10% rate - article 10, p. 8 Law no. 1308 of 25.07.1997 on

normative price and procedure for sale/purchase of land. The 2% rate represents

the minimum absolute value provided by law.

Applying the 0,3 coefficient, although the law allows coefficients ranging between

0,3-1,0 - article 12, point e), Law no. 182 of 15.07.2010 on industrial parks.

The state, in its ownership capacity over the adjacent land and as the law empowered body

to grant incentives may carry out changes in the incentives provided in order to stimulate

the investment amount in the area.

Assuming that the state will keep unchanged the 0,3 coefficient, but will increase the rental

rate for the normative price of the land to 5%, the investor will implicitly gain higher net

profits. The state can therefore negotiate an increase in the investment amount

corresponding to the incentives granted.

Table 28 Estimated rental price flexibility in relation to the investor's profit

Rental price increase 1sq.m.

100% 150% 200% 250%

Net profit in 30 years (investment capitalization), euro

10 264 613 12 830 766 15 396 920 17 963 073

Expected net profit 5 132 307 5 132 307 5 132 307 5 132 307

Expected interest 5% 5% 5% 5%

Obtained interest 7,45% 8,26% 8,92% 9,84%

Additional award in absolute values

5 132 307 12 830 766 15 396 920 17 963 073

Additional percentage award

2,45% 3,26% 3,92% 4,48%

An analyses of the above table indicates that the 5% increase of the rental rate of the land

normative price will allow the investor to increase the rental price by almost 2,5 times.

Such increase will bring about an additional 18 million euro.

Part of this award can be reinvested either in the expansion of the industrial park or other

industrial activities.

The study established the financial viability of the proposed industrial park in Cainari for

both the potential investor and the future residents.

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2.7 SOCIAL AND ECONOMIC IMPACTS OF THE INDUSTRIAL PARK ON THE REGIONAL

DEVELOPMENT The methodology for defining the impact of public policies, of the decision to create the industrial park, was laid out in the document called "Guidelines for the ex-ante analysis of the public policies impact”13. This guide provides ways of assessing the anticipated impact, through which were

identified the key indicators for assessing the potential impact of creating an industrial

park, namely:

Job creation;

Fiscal impacts;

Economic impacts;

Social and poverty impact;

Environment impact;

Administrative impacts.

The evaluated scope of the expected impact reflected in the guide will serve as a guideline

in presenting a more detailed impact analysis in this feasibility report, with deeper analysis

on the calculated evaluation of the possible impacts and their argumentation.

2.7.1 IMPACT ASSESSMENT The economic impacts of the establishment of an industrial park can be estimated through

the direct and indirect results.

The economic impact presumes an envisaged change of an economic activity. E.g. investing

in a warehouse would create an economic impact. All the money earned in finished

products sales has a multiplicative effect on the economy.

The returns are created directly, i.e. there is a direct impact of the raw materials

procurement, wages, goods and services needed for production, taxes, dividends and

savings. SMEs that obtain the payments for goods and services from consumptions (direct

economic impact), also the employees who receive salaries - these returns are

consequently used in local consumption or outside of it, which generates an indirect

economic multiplier. This methodology will provide a snapshot of the extra income of the

industrial park area: how much does a leu obtained from storage generate, from

manufacturing and marketing of goods and services, i.e. what revenue flights will occur

outside the industrial park area for their later use in the national economy.

13 Selection of public policy proposals Volume II, 2010.

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The direct economic impact of a group of companies is estimated by calculating the volume

of goods produced (estimated as sales revenue), creation of jobs and payroll, tax payments,

and other annual income generated by their annual operations.

The indirect impact results from:

The resident companies of the park purchasing goods and services from the local

and regional suppliers;

Employees of the park spending their salaries to consume goods and services. These

indirect effects generate additional income, job opportunities in the adjacent

segments of the industrial park.

The overall economic impact totals both the direct and indirect effects.

The indirect effects are calculated using the economic multiplier coefficients14.

According to the analytical data provided by the Ministry of Economy in the Information on

the implementation of the State Program to support small and medium enterprises sector,

in 2009 the average sales revenue of an enterprise amounted to cca MDL 1,581,100. The

average number of employees per enterprise in 2008 was of eight people, posting identical

data as of 2008.

The development of the industrial park, that requires a proper use of the reconstruction

investments and funding of production factors, is expected to be carried out over a period

of 2 years. Consequently, the optimal sales volume of the industrial park residents is to be

achieved in the second year, i.e. the moment the park will fully operate.

The annual growth in sales and salaries is expected to rise by 7%. The financial and

economic forecasts cover a period of 30 years. The calculations have been performed in

terms of Euro.

Table 29 Production investments performed by the future IP residents

m2

Construction cost per unit, euro

Total, euro

Production area 150 000 190 28 500 000

Equipment investments x x 20 000 000

Total 48 000 000

Table 30 Investment amount required for the infrastructure of the IP in Cainari

Total, Euro

Investment amount required for the infrastructure of the IP in Cainari 1 187 500

14 Marginal Propensity to Consume Locally; Marginal Propensity to Leak Locally

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Table 31 Anticipated cash flow generated by the industrial park residents (a)

Table 32 Anticipated cash flow generated by the industrial park residents (b)

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Net cashflow residents 2 075 2 220 2 376 2 542 2 720 2 910 3 114 3 332 3 565 3 815 4 082 4 368 4 673 5 001 5 351 Salaries paid by residents 918 982 1 051 1 125 1 203 1 288 1 378 1 474 1 577 1 688 1 806 1 932 2 068 2 212 2 367 Net cashflow management company 1 178 1 174 1 233 1 294 1 359 1 427 1 498 1 573 1 652 1 735 1 748 1 766 1 783 1 801 1 819 Salaries paid by management company 161 172 184 197 211 225 241 258 276 295 316 338 362 387 414 Taxes/duties 623 666 713 763 816 873 934 1 000 1 070 1 144 1 225 1 310 1 402 1 500 1 605 Total Direct Impact 4 954 5 215 5 556 5 920 6 309 6 723 7 165 7 637 8 140 8 677 9 177 9 714 10 288 10 901 11 556

2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Total Net cashflow resident 5 725 6 126 6 555 7 014 7 505 8 030 8 592 9 193 9 837 10 525 11 262 12 051 12 894 13 797 181 250 Salaries by resident

2 533 2 710 2 900 3 103 3 320 3 552 3 801 4 067 4 352 4 656 4 982 5 331 5 704 6 104 80 184 Net cashflow management company 1 837 1 856 1 874 1 893 1 912 1 931 1 950 1 970 1 990 2 009 2 030 2 050 2 070 2 091 50 503 Salaries paid by management company 443 474 507 543 581 622 665 712 762 815 872 933 998 1 068 14 032 Taxes/duties 1 718 1 838 1 966 2 104 2 251 2 409 2 578 2 758 2 951 3 158 3 379 3 615 3 868 4 139 54 375 Totoal Direct Impact 12 256 13 004 13 803 14 656 15 569 16 544 17 586 18 700 19 891 21 164 22 525 23 980 25 535 27 199 380 344

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2.7.2 INDIRECT IMPACT FORECAST (MULTIPLICATIVE ECONOMIC EFFECT)

The indirect impact is calculated by means of the economic multiplying coefficients. Their

values were estimated based on the experience of similar parks in Eastern Europe and the

impact values of the investment projects implemented in Moldova15, where investments

have been made in SMEs at an average rate of 80%; 20% of which representing

investments in the working capital.

Table 33 Indirect impact forecast (multiplicative economic effect)

Economic multiplication Within the Industrial

Park region Chisinau

National Economy

Sales revenues, coefficient 1,254 1,323 1,689

Sales revenue, euro 290 618 306 609 391 430

Job creation, coefficient 1,497 1,586 1,807

Job creation, places 844 895 1 019

The interpretation is simple. Every euro of the sales revenue, earned in the industrial park,

will increase the region' total revenue (Cainari town) by 1.254 EUR, by 1.323euro the

revenue of Chisinau and by 1.689 euro - the national economy. Similar calculations apply to

the job creation algorithm.

2.8 INVESTMENT APPRAISAL 16 The appraisal of investment projects consists in defining the usefulness of the projected

investments, in order to determine the soundness of an investment initiation. The bottom

line in this process refers to the investment assessment in time, considering future

monetary depreciations, though currently invested. Both net present value and the internal

rate of return of the project are used to perform this assessment:

a) Discount rate – 8% annual;

b) Forecast period – 30 years.

c) Consolidated results

Table 34 Estimate of investment amount (€)

Investment amount, thousand euro 49 188

Direct sales impact, thousand euro 231 753

Indirect sales impact, thousand euro 159 678

Job creation, direct, people 480

Job creation, indirect, people 387

Taxes/duties, thousand euro 54 375

NPV thousand euro 49 188

IRR 20%

Payback period, years 6

15 The World Bank Rural Investment and Services Project (RISP II), Competitiveness Enhancement Project, IFAD Program for the Development Rural Affairs 16 Capital budgeting/investment appraisal

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2.8.1 OPINIONS

Both economic and financial forecasts, as well as the impact assessments of the industrial

park creation in Cainari, have fully demonstrated the viability of this project.

The strategic location of the industrial park, existence of an infrastructure that requires

comparatively no major investments, access to local and external markets, availability of

skilled labour, make the necessary hypotheses to establish a successful industrial park.

2.9 ENVIRONMENTAL IMPACT ASSESSMENT UPON THE CREATION OF AN INDUSTRIAL

PARK The Law of the Republic of Moldova "On environmental protection" (No. 1515 of

16.06.1993) is the legal framework governing the legal relations concerning projects

implementations that can pose damage to the environment.

The Law on Environmental Protection comprises general provisions on the State Ecological

Expertise (No. 851 of 29.05.1996). Article 21 determines the purposes of the expertise, and

(b) is of special importance, as it refers to the environmental impact evaluation of all

economic activities, taken separately or together, which may affect the environment,

people's health, their living standards (the same legal stipulation is foreseen in Art. 6 (1) of

the Law on Ecological Expertise and Environmental Impact assessment).

Therefore, any project is required to undergo the state ecological expertise. According to

article 25 (Law on Environmental Protection), the state ecological expertise can evaluate

any project upon the initiative of the environmental bodies, other departments and

ministries or public organizations.

Article 23 stipulates that all new programs and projects on building, expansion,

reconstruction and modernization of economic and social objectives that may affect the

environment, regardless of location, financing sources and other conditions, are subject to

expertise. Accordingly (Art. 24), beneficiaries are to provide the project documents

according to [i] regulations in force, [ii] in agreement with the ministries, local

administration departments, and with the organizations interested in the location and

technical supply of the object, and [iii ] authorization issued by the surveillance and state

control authorities to perform such type of economic activity [iv] under the state-approved

list.

In addition to the national legal provisions, it is important to assess the negative

environmental impact limits, occurring following the creation of the industrial park, from

the international organizations perspective.

Considering the contribution of the World Bank project, that funded a number of studies on

the creation of industrial parks in Moldova, and more importantly, that such organizations

can contribute substantially to parks financing, this study will refer to the World Bank

institutions' provisions on the environmental impact that may actually serve as an

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environmental guide to attract foreign investments to finance the needs of the industrial

park.

The key document for the development of an industrial park, which is normally, the

Development Plan, covers issues such as: details about the specifics of the industrial park

location (e.g., avoidance of food contamination by ensuring that the adjacent and nearby

units are compatible), water and air quality management, including the use of water

treatment facilities, solid waste management, including their recycling, waste and

hazardous materials management, noise control, work safety.

A major benefit of the environmental impact (in terms of industrial parks), represents the

possibility to benefit from the economy of scale, sharing facilities and waste effluents. At

the same time, enterprises, as individual units, must follow individual methodologies for

the environmental impact improvement, depending on their separate production activity

(State Ecological Expertise). The environmental impact management plan for each resident

should be included in the contract signed with the management company.

2.9.1.1 Polluting indicators

The following recommendations should be taking into account upon the creation of an

industrial park.

To encourage the use of vapour recovery systems, where appropriate, to control the losses

of volatile organic compounds (VOCs) from the storage tanks, in order to achieve a 90-

100% recovery rate.

To encourage the residents to use of low-nitrogen oxide emissions (NOx) of the thermal

units. The use of fuels with low sulphur content (or an emission level of 2.000 milligrams

per cubic meter mg/Nm3 SOx). A sulphur recovery system may be feasible for large

installations, when the concentration of hydrogen sulphide from exhaust pipes exceeds

230mg/Nm3.

The emission level for the design and functioning of the industrial park must be established

through the environmental assessment (ecological expertise for example).

There will hereby be presented the following emission levels accepted by the World Bank

Group in making decisions regarding the provision of financial assistance. Any deviations

from these levels will be described in the project documentation. The dilution of emissions

or effluents to achieve the prescribed limits is unacceptable.

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Emissions into the atmosphere. Acceptable pollution limits

For individual or common stacks:

Table 35 Gas emission parameters

Parameter Maximum value

mg/Nm3

Particles 50 for large units (PM)* 150 for small units

NOx For energy consumption lower than 10 Giga Joules per hour: 750 (solid fuel) 460 (liquid fuel) 320 (gaseous fuel)

SOx 2000

Hydrogen sulfide 15

* For units that emit significant quantities of toxic metals, the emission limit is 20 mg / Nm. Liquid effluents. The following maximum levels are to be obtained:

Parameter Maximum value, miligrams per litre

PH 6 - 9 Oils and fats 10 Cadmium 0.1 Chromium (hexavalent)

0.1

Chromium (total) 0.5 Copper 0.5 Lead 0.1 Nickel 0.5 Zinc 2 Phenol 0.5 AOX 1 Benzene 0.05 Benzo(a)pyrene 0.05 Sulfide 1

Solid waste and sludges

The generation of sludge should be minimized to the lowest level possible. The sludge must

be treated or stabilized in case that toxic metals are identified.

Ambient noise

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The noise abatement measures should achieve either the levels given below or a maximum

increase in background levels of 3 dB (A). Measurements shall be taken by the noise

receptors located outside the noise units (sources).

Table 36 Estimate of the effects of the ambient noise

Highest allowed, Leq (h), in db (A)

Day Night Receptor 07:00 - 22:00 - 22:00 07:00 Residential; 55 45 Industrial; 70 70 Commercial

Monitoring and reporting

The closure tests should be repeated frequently, both upon the project initiation and at

later stages of the development.

A daily monitoring of the particle emissions from stacks is recommended, along with a

monthly monitoring of the sulphur content in the used fuel, in combustion sources. A daily

monitoring of the liquid effluents for all the applicable parameters mentioned above,

except for aromatics, metals, and sulphides, which must be monitored at least once a

month.

The Industrial Park Administration shall encourage the residents in monitoring the data

analysis, performing regular reviews, and comparing the data with the operating standards

in order to undertake all necessary corrective actions. It is recommended to keep the

records of the monitoring results in an acceptable format. The records must be reported to

the competent authorities and stakeholders, as appropriate (e.g. financier). Industrial parks

must maintain records of the accidental environmental pollutants emissions and take

appropriate corrective action to prevent their future occurrence. The industrial park

administration is recommended to organize appropriate trainings for the residents on how

to improve the environmental impact.

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Annexes

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Annex 1: Action plan for the establishment of the Industrial park in the town of Cainari

no. Actions Executives Term Month

1 2 3 4 5 6 7 8

STEP I.

1

Promotion of the project on the establishment and functioning of the

industrial park through the mass media: newspapers and magazines,

placement of promotional materials on ME website, MIEPO and

other pages, TV, etc.

MIEPO, ME, LPA Permanent

2

Project promotion through the national and international

organizations: MIEPO, Chamber of Commerce and Industry,

embassy and diplomatic representations of the Republic of Moldova

abroad and foreign countries consulates in Moldova, bilateral

Chambers of Commerce, consulting companies, investment funds,

international financial institutions.

MIEPO, ME, LPA Permanent

STEP II.

3 Promotion of draft Government Decision to repeal Government

Decision no. 988 of 26.08.2008 on the establishment of the industrial

park in Cainari.

ME 2 w.

STEP III.

4 Liquidation of „Industrial Park Cainari. ME 2 months

STEP IV-V

5 The repeal of the decision no. 4/1 of 19.03.2008 by the City Council

of Cainari; transmission under free use of the adjacent land by the

local public administration to the identified investor, based on the

commodatum agreement.

LPA 2 w.

STEP VI

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6 Identified investor: elaboration of documents on the assignment of

the industrial park title (art. 8, Law 182/2010) Private investor 4 w.

7 Filing for consideration the documentation with the Ministry of

economy Private investor,

LPA

1 day

8 Examination of submitted documentation. Elaboration of the draft

GD on the assigning the private investor the IP title and the statute

of managing company.

ME 4 w.

9 Promotion of draft GD on assigning the title of "Industrial park in

Cainari". ME 2 w.

STEP VII

10

Launching the investment process Private investor 4-5

months