Russian Prime Minister, Dmitry Medvedev, has attended the foundation stone laying ceremony for Volkswagen's new engine plant in Kaluga. 

Volkswagen says it will supply its vehicle assembly plant at Kaluga and contract production at the GAZ plant in Nizhny Novgorod with locally produced engines from 2015.

The foundation ceremony for the new engine site was attended by Medvedev, as well as Kaluga Oblast Govenor, Anatoly Artamonov and Volkswagen group production board member, Michael Macht.

"The cornerstones of our success in Russia are our Russian production facilities," said Macht. "The new engine plant at Kaluga will add the component technology required by our local production capacities, strengthening our position on the Russian market."

The engine facility is being built on a site with an area of 30,000 square meters in the immediate facility of the Volkswagen vehicle plant at Kaluga and is designed for an annual capacity of 150,000 units.

The engine to be produced at Kaluga will be a 1.6L petrol powerplant from the EA 211 series, with the start of production scheduled for the beginning of 2015.

Volkswagen Group says it is the largest foreign automobile investor in Russia, investing around EUR1bn (US$1.3bn) in local production and new models since 2006.

The Group recently announced it would be investing a further EUR840m in Russia during the next three years, with construction of the new engine plant accounting for about EUR250m.

Volkswagen has been producing vehicles for the Russian market at the Kaluga plant since November 2007. Currently, four models are manufactured - the Volkswagen Tiguan and Polo as well as the Škoda Octavia and Fabia.

Contract production of the Škoda Yeti has started at the Nizhny Novgorod plant of the Group's partner GAZ, with local component production at the new engine plant due to follow from 2015.

Planned production includes cylinder blocks, cylinder heads with integrated assembly, crankshafts and the assembly of complete engines. The Group also plans to build a logistics centre near Moscow.

Volkswagen says it will ensure at least 30% of the vehicles produced in Russia are equipped with locally manufactured engines by 2016 to comply with targets in the additional agreement to Decree 166, signed with the Russian government at the end of May last year.

Maximum annual capacity at the Kaluga plant is currently 225,000 vehicles and the Group will produce around 175,000 vehicles this year, compared to 135,000 in 2011.

Future annual capacity at Nizhny Novgorod, in the first stage of development, will be around 110,000 vehicles, with production due to start next year.

For the Volkswagen Group, Russia is currently its sixth-largest individual market, after China, Germany, Brazil, the US and the UK.

In 2012, the Group will deliver more than 315,000 vehicles to Russian customers, a growth of 38% compared with the previous year.

More than half of these vehicles already come from local production. In the long term, the Volkswagen Group plans to sell 500,000 vehicles per year in Russia by 2018.