Russian fuel and energy sector not prepared to give up imports yet

6 october 2016

A vast majority of fuel and energy companies as well as companies operating in associated industries believe that import substitution policy is a good incentive for innovation, yet many of them are in no position to stop buying imported products just yet. This is the conclusion the Analytical Center experts made as part of a survey entitled Import Substitution Problems in Fuel and Energy and Associated Sectors.

The survey looked at 38 companies having core production facilities in 42 regions across Russia. In terms of territorial distribution the respondents represented practically all the federal districts except the North Caucasus and the Far East. Most of the companies surveyed are in oil and gas mechanical engineering, cable industry and electrical engineering. Most of the surveyed companies are privately owned.

Russia has been actively pursuing import substitution policy since the beginning of 2015. One goal of this policy is to promote domestic manufacture of competitive products in industries that currently have a high dependency on imports.

"Most of the companies surveyed noted that there was potential for import substitution in their sector and said that import substitution policy was a good incentive for innovative development," the survey shows.

At the same time, the experts note that companies are not yet ready to stop buying imports, especially when it comes to technology, tools, materials, production equipment, and spare parts. Thus, 67.6% of the respondents say that completely abandoning imports in these areas would render them unable to offer competitive products.

Сompanies are not yet ready to stop buying imports, especially when it comes to technology, tools, materials, production equipment, and spare parts.

"Most companies say manufacture of new unique products is an important factor for reducing dependence on imports in their sector, as such products could help them catch up with western technological development and to forego imports altogether. Another factor that could help reduce imports, according to most of the respondents, is government financial assistance," the analysts write.

More than a half of the respondents (24) said they saw ample import substitution potential in their sector. Of of these 16 have oil and gas equipment manufacturing facilities, 4 offer cable and electrical products, 2 specialize in power engineering, and another 2 in petrochemical and natural gas chemistry products.

Among the most important strategic goals for their development the companies cite expanding the market for their products, developing their own technology and modernizing existing production processes. Expanding exports and becoming more competitive on the global markets are seen as less important. At the same time, the experts note that the companies do want to offer competitive products but they are primarily interested in the domestic market.

Among the most important strategic goals for their development the companies cite expanding the market for their products, developing their own technology and modernizing existing production processes.

A vast majority of the respondents, mostly in oil and gas mechanical engineering and in cable manufacturing, have plans to carry out investment projects to modernize or expand production as well as to offer new products. Thus, 18 out of 29 companies plan to launch new products for the oil and and gas industry, 10 companies plan to offer new products in the cable and electrical equipment sector, and 6 power engineering companies also have plans to expand their product range.

At the same time, the respondents noted that they were not prepared to stop using imported products altogether at various stages of their production processes. "About a third of the companies depend on imports for 20-50% of their tools and materials, production equipment and spare parts. 40% of the respondents said imported technologies, raw materials and component parts accounted for no more than 20% of their production processes," the survey notes.

A small proportion of the respondents, primarily companies offering equipment for the oil and gas sector, claimed they were not using any imported products in their production processes at all.

For more details see the survey Import Substitution Problems in Fuel and Energy and Associated Sectors.

For other reviews see Publications.