Volkswagen may build an engine plant in the Russian city of Kaluga, the Kaluga region governor, Anatoly Artamonov, said.

Another person familiar with the matter told Dow Jones Volkswagen, which already operates a car plant in Kaluga, will discuss its plans on building the engine factory at the Ministry of Economy next week. A Volkswagen spokeswoman for Russia declined to comment.

Russia has obliged foreign carmakers to start locally sourcing a third of the engines or gearboxes they use to produce cars in the country within the next four years to be eligible for minimal import duties on car parts up until 2020.

To get the exemptions, carmakers also must agree to build new facilities in Russia and produce at least 300,000 cars a year locally or modernise existing plant and make at least 350,000 cars a year, the report noted.