United Grain Company welcomes foreign investors

Russia's state grain trader United Grain Company (UGC) will welcome foreign investors as it pushes for a 40% share of the country's grain export market.

The Russian grain export market can nearly double in five years with a US$3 billion cash injection. Russia could have 35-40 million tonnes a year of surplus grain for export as early as 2015, and the United Grain Company (UGC) needs to ensure the infrastructure is there to support it, said company CEO Sergei Levin.

The UGC is open to any market players, both Russian and foreign, said Levin. The company has played a huge role in Russia's grain trading community since its formation in March, with many foreign players uncertain what role the state grain trader will play on the domestic market.

UGC aims to upgrade Russia's obsolete infrastructure, which is unfit to support ambitious plans to raise grain exports. Levin estimates investments totalling RUB99 billion (US$3.3 billion) will be necessary by 2015.

The target is to sell Russia's exportable grain surplus and to modernise the infrastructure, and the most efficient way of achieving this is to give away a controlling stake to private capital, a move the government will seriously consider, said Levin.

If private investors are not interested, the government will consider other forms of financing such as direct from the budget, state guarantees for project finance or others, he added. Levin expects private investors to contribute about RUB25 billion (US$819.6 million).

Russia has a shortage of grain elevators, with less than one-third of the 118 million tonnes of storage capacity considered as modern and the rest were built in the 1950s and 1960s. Russian ports, incapable of handling more than 23-24 million tonnes of grain exports annually, also need to be modernised.

The UGC aims to export only about four million tonnes from state stocks next year, out of the six to eight million tonnes in the stocks, as putting all available stocks on the market would drive down prices immediately.

The company would target the main buyers of Russian grain, mainly Egypt, which accounts for about a quarter of total Russian wheat exports. The company will also seek new buyers, said Levin.