Prime Minister Vladimir Putin held a meeting in St Petersburg on Friday on the development of Russia's power equipment sector. He said the government should create conditions that support production of national power equipment, because "if we import everything, we would all quickly degrade here."
The prime minister acknowledged that his statement implies "certain restrictions, because it doesn't happen any other way," and promptly instructed the Ministry of Economic Development to "study the issue of anti-dumping measures and duties on power equipment imports." At present, the import duties on foreign equipment are 5%-15%.
The prime minister supported the proposal by the Ministry of Industry and Trade regarding tough customs tariff regulations of the power equipment market. In early March, the ministry published a strategy for the development of the power equipment sector. The document included certain protective measures, such as a complete ban on the purchase of imported equipment, if the share of such equipment in the Russian power grid, now 5%, exceeds 20%. The motivation for the ministry's proposal mainly comprised Russia's dependence on imports, which threatens the country's energy security. But the prime minister made no attempt to hide the fact that this is more about the division of the market. He estimated that the volume of orders in the power equipment market will cost 3.1 trillion rubles over the next three years, of which contracts placed by power generating companies will account for no less than one trillion rubles.
By 2030 this market will have consumed up to 20 trillion rubles, said Energy Minister Sergei Shmatko.
Deputy Minister of Economic Development Andrei Klepach tried to object. He explained that if anti-dumping investigations are still possible, then raising import duties on equipment contradicts the terms of Russia's entry into the World Trade Organisation.
But the prime minister stressed that Russia is not currently a WTO member, and that the country will not assume any obligations for the sake of joining the WTO in the future. "Why on earth would they accept us if we already fulfill all conditions?" Putin asked. He added that the market should remain open only to models of imported equipment that will definitely not be manufactured in Russia. The ministry's strategy expresses that in general, support for the Russian power equipment sector should also rely on co-financing from state research and development, export incentives through cheap credit, and tax and investment benefits.
There are no clear proposals so far about the amount of import duties, say officials at one power equipment company. Moreover, Klepach noted that his ministry is unable to begin any anti-dumping investigations because not a single Russian manufacturer has requested them. However, most of the issues that came up at a meeting in St Petersburg, especially concerning a possible investigation that Klepach mentioned against the import of Chinese equipment, have to make Russian suppliers happy, investors say. For example, officials at Silovye Mashiny (Power Machines), a turbine company, stressed that in the turbine segment, only gas turbines are not produced in Russia, implying that duties could be raised on all other products.
Yury Mironov, the head of the Energy Producers Union, said power generating companies believe that higher import duties should not affect equipment that is already due to be delivered under power supply contracts. "They list equipment efficiency levels and all specifications," Mironov said. "This is all linked up with the obligations of the power companies, and we don't want to change the entire situation after duties are raised." He did not elaborate on how to avoid charging import duties on equipment listed in power supply contracts. According to the Ministry of Industry and Trade, at least 60% of existing power supply contracts involve the purchase of imported equipment.
The idea of protecting the power equipment market and developing Russian production is sensible – a path that China has recently gone down, said Sergei Pikin, head of the Energy Development Fund. Mikhail Pak from Aton brokerage added that it is possible to stimulate foreign manufacturers to establish production facilities in Russia by promising to offer them power company contracts. Russia's FSK UES and Hyundai have already set up a joint venture to manufacture transformers, and RusHydro and Alstom are establishing another that will produce power equipment. The Russian side, rather than becoming involved in production facilities, will only provide the ventures with long-term contracts.
On the whole, says Pikin, support for the power equipment sector is not a matter of customs protection, but rather tax breaks for those companies that are ready to manufacture advanced models "rather than equipment that was developed in the 1980s and is now sold under licence." According to the prime minister's instructions, deciding what to consider advanced equipment is a matter for the Ministry of Industry and Trade.