Land reclamation systems help reduce village dependence on weather / Sergey Venyavsky / RIA Novosti

Asian fund ADM Capital has invested $30 million in a land reclamation project in southern Russia, the press service of another co-investor in the project, OJSC North Caucasus Development Corporation (NCDC, a 100% subsidiary of state-owned Vnesheconombank), reported. The project is being implemented by Irrico, a company created by VTB Capital. VTB Capital also released a statement about the investment yesterday. ADM Capital did not respond to Vedomosti's request.

Irrico was created in 2012 "with the aim of developing intensive crop production in Stavropol Krai," a representative of KRSK told Vedomosti. The project, he said, involves growing soybeans, corn, potatoes, wheat, sunflowers and rapeseed, as well as processing agricultural crops. The Irrico project, according to a statement from VTB Capital, is focused on acquiring large farms in the south of Russia. Irrico currently controls about 25,000 hectares, and after the second round of financing, this area will increase to 60,000 hectares. The company plans to harvest its first crop next year.

The total volume of project financing, according to KRSC, is 8.02 billion rubles ($267 million), including both shareholders' money and loans. In January 2013, the first round of investment in the company was closed: the investment volume was $49 million, of which 51% was invested by KRSC, 49% by VTB Capital. Yesterday, the partners announced the completion of the second round of investment: another $36 million was invested, including $30 million from ADM Capital CEECAT Recovery Fund, the rest was "funds from other investors" that were not disclosed, says a KRSC representative. VTB's statement does not mention the volume of investment. After the second round, KRSC will be "one of the majority shareholders" of the project. "ADM Capital entered Irrico's capital through an additional share issue and is a minority investor," Andreas Bezenberg, deputy head of direct investments at VTB Capital, told Vedomosti through the press service. The project will be chaired by Jason Silm, head of agricultural investments at VTB Capital.

25,000 hectares of the Irrico land bank will be equipped with sprinkler irrigation systems, according to a report from KRSC. However, in August, Viktor Kuzmenko, manager of the VTB branch in the North Caucasus District, said in an interview with Expert-Yug that 32,000 hectares would be artificially irrigated. It is planned to create an irrigation system along the Pravoegorlyk Canal based on the infrastructure of melioration agriculture that existed in Soviet times, he said. Currently, according to KRSC, irrigation systems have been installed on an area of 2,300 hectares, and by the end of 2013, it is planned to expand to 5,400 hectares.

Land reclamation is one of the main ways to reduce the dependence of the harvest on the weather factor. In 2012, 21 subjects of the Russian Federation suffered from drought, the damage amounted to approximately 36.5 billion rubles. The damage from drought in 2010, according to estimates by the Accounts Chamber, amounted to 41.8 billion rubles. But due to the high cost of irrigation, not many companies undertake projects, said Viktor Aleksakhin, CEO of Russia's largest sugar producer Prodimex. Successful irrigation projects have already been implemented in Krasnodar Krai and Voronezh Oblast, but Irrico is perhaps the largest of them in terms of investment, says Dmitry Rylko, CEO of IKAR.

But the project's effectiveness in the south raises questions - these lands are subject to salinization, warns Rylko. Due to the lack of a specialized partner in the project, the question arises as to how correctly its entire structure has been developed, says Vladislav Novoselov, Managing Director of the consulting company BEFL. Most likely, the company plans to get under the federal target program "Development of agricultural land reclamation" with this project and partially reimburse the costs through subsidies, he believes. According to calculations by the Ministry of Agriculture, 185 billion rubles will be needed for reclamation by 2020, including 75.3 billion rubles from the federal budget.

VTB Capital had long been eyeing the agricultural sector. In 2011, it announced the creation of a special fund of up to $1 billion for investment in agricultural assets, but in December 2012 it announced that it had abandoned the fund idea in favor of a company with a starting investment pool of $200 million.

Millions for land reclamation