Infrastructure projects influence economy

24 december 2014

The Analytical Center conducted a roundtable "Realization of infrastructural projects in macroeconomic shock conditions: problems and prospects of metallurgical industry". Experts discussed metal products of infrastructural use pricing criteria and practices on their implementation in stability, possible adaptation and negative effects reduction mechanisms.

During 2014 there was a significant fall in the ruble's nominal exchange rate against major world currencies. This has led to imbalance increase in the raw materials' market, where import and export components are significant: imported products became more expensive for Russian consumers and export markets became more attractive. This is especially noticeable in the market of steel products, according to experts.

Products of metallurgical industry are key components of major infrastructure projects, including the construction of gas and oil pipelines, according to the Head of the Department for Strategic Studies in Energy the Analytical Center Alexander Kurdin. Products' purchasing conditions, including their pricing mechanisms, ability of these mechanisms to consider the global market situation and macroeconomic environment are of paramount importance for these projects' implementation, considers the expert. "It is necessary to pay attention to infrastructure's state to lead the economy out of stagnation and recession, as infrastructure projects will bring significant long-term effects for the Russia's economy. However, it will happen only if they are efficiently organized and are be in demand", said Mr. Kurdin.The expert also reminded the "South Stream" project recent closure. "The main problem is that contracts with Russia's largest steel companies have been signed. The way out is not yet clear. So far, only the adaptation to the new conditions' process remains", said the expert, adding that today gas prices are not stable, infrastructure projects are under threat, so it is not clear how operational the existing market system is. It is possible that steel companies need additional warranty.

"Almost 99.9% of the energy industry's volume needs are provided by Russian tubular goods enterprises. However, this industry has good debt capacity, interest closing is challenging for enterprises, so it turns out that the interest rate is killing all the enterprises' technological capabilities"" said the chairman of the Coordination Council of the Association of Producers of pipes Ivan Shabalov. Changing interest rates and volatile dollar exchange issues have been resolved between Gazprom and pipe companies, they use a specific price formula. To ensure stability during these projects implementation process it is necessary to understand the planning system, considers Mr. Shabalov. The state planning system in infrastructure projects should be more stringent. "A Russian company can deliver pipes for any project as the pipe industry is new, it has modern equipment. However, this area should exist in comfortable environment, it is necessary to consider contracts, remove the stiffness of credit lines and financial guarantees which are provided", claims the expert. Pricing policy monitoring due to exchange rate factors and interest rates is of need.

In the current situation the edge between competition security and economic regulation faded, according to experts.