VW is just the latest foreign car firm to invest in Russia

The plant near the city of Kaluga, 200km (125 miles) south west of Moscow, will assemble 66,000 VW Passat and Skoda Octavia models next year.

Built for 1bn euros ($1.5bn; �713m), VW aims to raise production to 150,000 cars by 2009, and employ 5,000 people.

Toyota, Renault, Ford and Kia already have Russian factories, and Nissan is building a plant in St Petersburg.

All are responding to the fast-growing Russian car market, which is booming on the back of Russia's rapidly expanding economy and rising numbers of middle class consumers.

'Spending power'

Sales of foreign car brands, including those built in Russia, surged 64% to 1.3 million vehicles in the year to October, according to recent data.

VW's Russian unit is 20% owned by the European Bank for Reconstruction and Development (EBRD).

This is an inter-governmental European body that aims to help build market economies and democracy in eastern Europe and central Asia.

"There is a growing [Russian] middle class which is able to buy cars, houses, and consumer goods," said EBRD director Alain Pilloux.

Despite fears and complains in the West over how the Kremlin has effectively renationalised the Russian energy sector in recent years, foreign direct investment in Russia soared 91% in the first nine months of this year to $19.6bn.