Prime Minister Vladimir Putin visited Nizhnekamskneftekhim to chair a meeting on developing the Russian gas and petrochemical industry
Prime Minister Putin's introductory remarks:
Good afternoon, colleagues,
Today we will continue to discuss the situation in certain Russian industries and in the real economy. I suggest that we discuss the state of affairs in the gas and petrochemical industries.
Russia accounts for 9-10% of the world's crude oil exports. However, the Russia's export share for high-technology conversion products such as polymers stands at only 1%. Moreover, imports account for over a third of domestically consumed petrochemical products.
Simply put, we export crude oil and import final products, which are often produced from Russian crude.
This doesn't mean that we must close the Russian market to imports. The situation must be changed in the industry, and we must create conditions for increasing exports of products with high added value.
The sources of the problems in this industry are clear. They include obsolete equipment and the remoteness of most Russian factories from external markets. When these facilities were constructed, the crucial factor of transport costs was not taken into account.
However, the Russian petrochemical industry has one great competitive advantage: It has a unique resource base. Russian and foreign investors see significant potential in the industry. Modernising it will not require massive government support. It is true that infrastructure support and legal maintenance are required, with state guarantees sometimes needed as well. But these are cost-effective measures, and it is easy to find financial resources in the market.
There are several examples of successful investment projects and successfully implemented high-technology production facilities. More of these sorts of projects are needed.
What is required for this?
First of all, support must be provided primarily to well established and competitive companies as a part of anti-recessionary measures and other government support programmes. We should avoid keeping inefficient production facilities afloat at all costs.
Second, it is necessary to prevent companies in this industry from taking advantage of their position as a monopoly as early as possible. This applies mainly to production facilities that became infrastructure monopolies back in the Soviet times and then developing as integrated production facilities.
I would like to emphasise that the pipelines and other network facilities were built to serve as unified production facilities in particular territories. All interested companies must have indiscriminate access to them.
In addition, it is necessary to create the conditions that will allow for the prices of crude and intermediate conversion products to be predictable and fair. These prices must be calculated using unbiased and understandable formulas, and for the long-term. Market players should come to an agreement that would make their production costs publicly available, and then find a compromise. Without this, it is impossible to ensure sustainable growth and to attract long-term financial resources to the industry.
In this regard, I would like to emphasize that during today's tour we managed to find a solution to one of the most challenging problems in the industry. I would like to thank everyone who worked on this today and made it possible. I am charging Deputy Prime Minister Igor Sechin and the Antimonopoly Service with finalising the agreements we reached, which were signed by all parties concerned, including the heads of all companies concerned. I am referring to the agreements on the prices, timelines and volumes of crude to be shipped. Mr Sechin, I am asking you to supervise this issue and ensure that we follow up on it.
Third. The worldwide trend in recent decades is consolidation of petrochemical production and implementation of even larger-scale projects. At the same time, the opposite was occurring in Russia - division of manufacturing complexes was taking place and customary connections between companies were being unravelled. Of course, all of these sectors must function on the market, but they must be competitive. And competitiveness cannot be assured with weak efforts and prohibitive costs.
And the result of what was happening in the last decade in Russia in this sector is that today the scale of the average Russian company in the oil and gas chemicals field is paltry compared with the western and Asian giants. These Russian companies do not have access to low-cost long-term loans or research and development financing.
Therefore, amalgamation and consolidation of this industrial sector is on our agenda. The state must facilitate this process in every possible way. And it will do this intentionally.
Fourth. It is necessary to strike a balance between providing for export supplies and external consumption. We cannot leave our production facilities without raw materials. We need to understand that demand for finished goods will always grow. I'm sure that that's the way it will happen - the economy will recover and demand will increase.
I am referring first of all to residential and road construction that uses modern and environmentally friendly materials - plastics - which enable significant cost reductions in the facilities being built, as well as their increased durability and reliability.
We are faced with the complex task of revising standards and norms in both residential and infrastructure construction. Naturally, we must also take into account the opportunities to use new high-tech materials.
Fifth. An accelerated technical revamp of the sector and widespread introduction of innovations is necessary.
In the near future, we need to identify the most promising domestic technologies, the development of which will be prioritised, also in the interests of the country's defence capability.
But at the same time, if there are some technologies that we can purchase on the market by buying appropriate licences, we, of course, need to do this and we need to minimise our cost, which will allow us to avoid inefficient spending.
Apart from the introduction of new technologies, this sector of economy needs management innovations. These are, of course, less capital-intensive, but no less important for growth in labour productivity and lessening environmental impact.
Sixth. Government must help business considerably lower the cost of implementing investment projects, which are for the moment more expensive in Russia than they are in Europe or Asia. To start with, we could achieve this by changing the sector-specific norms for technical regulation and cost reduction.
The regulations that are currently in force were developed 20-30 years ago and do not account for today's technological progress. The kind of progress, which genuinely provides for reliability, safety, environmental friendliness and environmental standards. Of course, safety and environmental standards must be ensured. But everything that hinders the development of the sector should be removed.
Let's discuss all of these issues in more detail.
