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How Import Substitution Strategy Works

Date of publication: 31 July 2020

A delegation from Transneft, the world’s largest oil pipeline company, was introduced to some products manufactured by Perm enterprises.

Delegates of Transneft, the world’s biggest oil pipeline company, got acquainted with the output of Perm enterprises.

Transneft sent its delegates led by Vice President Pavel Revel-Muroz to the city of Perm. A business meeting with Transneft specialists took place at Shpagin Plant where a vast exposition of innovative products was deployed, with about 30 manufacturing enterprises of Perm Territory presenting their offer for the pipeline industry.

Import Tending to Zero

Transneft experts familiarised themselves with protective outerwear and safety helmets, oil pumps and pipeline repair equipment, hydrocarbon vapour concentration metering devices and cable products on display at show benches.

16 Perm-based enterprises already actively collaborate with Transneft, and this time they presented to the Company’s delegates their new inventions, such as “smart helmets” with GPS sensors enabling the dispatcher to see the location of any employee in real time, or well flooding annunciators indicating whether a well is filled with water or oil. Other manufacturers were interested in entering cooperation with Transneft.

At the business meeting, Industry, Entrepreneurship and Trade Minister of the Perm Territory Aleksey Chibisov emphasised the fact that Perm enterprises now have a unique chance to introduce themselves to the certification and procurement system used by Transneft, to streamline their ways to getting orders from the oil transportation giant.

Mr. Revel-Muroz pointed out that Transneft successfully implemented the import substitution programme, increasingly using homemade equipment and materials. Whereas in 2017 the share of products made in Russia in the Company’s procurement stood at 93%, in 2020 it has risen to 97%. By this parameter, Transneft is the leader among FEC enterprises. Due to import substitution policies, the Company has totally given up on the procurement of pipes, metalwork, tank farm equipment, control and stop valves, cabling, electric drives, transformer stations and firefighting systems abroad. To reduce import dependency, Transneft has started its own manufacturing and has been making consistent effort in its collaboration with enterprises from different Russian regions.

Since the turn of this year Perm-based companies have supplied products worth RUB 800 million to Transneft.

“Based on the results of our visit to Perm Territory I can say that most promising are inventions in mechanical engineering; we already cooperate with many local manufacturers who know our requirements. This meeting provides an opportunity for our engagement with new suppliers and expansion of the already established cooperation,” Mr. Revel-Muroz concluded.

In the course of the business meeting, Transneft specialists told the representatives of Perm enterprises about the requirements of Transneft subsidiaries to products purchased, and about the procurement procedures. The meeting participants also discussed mutually beneficial collaboration and the prospects of joint projects with the oil pipeline company.

New Jobs and Taxes

Vice President of Transneft Pavel Revel-Muroz held a business meeting with Interim Governor of Perm Territory Dmitry Makhonin.

Business Meeting between Transneft’s Vice President Pavel Revel-Muroz and Interim Governor of Perm Territory Dmitry Makhonin

The Head of the Kama Region underscored that Transneft was his region’s key partner. Perm manufacturers supply steel pipes and fittings for oil and petroleum products trunk and process pipelines, mud traps, oil pumps and electric pumping units, oil pipeline repair equipment, tank farm facilities, overalls and cabling.

From January 2019 to March 2020, Transneft subsidiaries signed nearly 4,000 contracts with Perm manufacturers to the tune of more than RUB 4 billion.

“Since the beginning of this year, Perm-based companies have supplied products worth RUB 800 million to Transneft,” says Mr. Makhonin. “This is almost as much as for the entire past year. This figure showcases the potential of our firms.”

In its turn, thanks to the import substitution programme, Transneft invests in the development of domestic manufacturing capacity, creating new jobs, increasing tax proceeds to the budgets of all levels and making a significant contribution to the economy of the Kama region.

Now about 1,500 people work at the Transneft facilities located in Perm Territory. Transneft investments in the Kama region for the past three years totalled RUB 11.85 billion.  And in the five years to come, the planned level of investments stands at about RUB 17.3 billion. The expected tax proceeds to the budget of Perm Territory amount to RUB 875 million.

There is one more aspect of Transneft’s positive impact on the region’s industrial development, in addition to direct financial injections. As a major consumer of equipment, machinery and materials, the Company does not only provide lucrative orders for the local enterprises, but also encourages their transition to way higher new quality standards. Thus, the pipeline company becomes a driver of economic growth for Russian regions.

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