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Social responsibility and corporate sustainability report 2015

Import Substitution

Import Substitution Programme of Federal Grid Company for 2015–2019

The target is to reduce the share of imported electric equipment in the total equipment purchased to

or less by 2030.
According to the Russia’s Energy Strategy up to 2030, one of the main characteristics of national energy security is the energy sector’s resilience to external and internal economic, man-caused and natural threats and its capability to minimise damage resulted from various destabilising factors.

The key factor assuring the sector’s resilience to external economic challenges is the capability of national economy to provide energy companies with prime means needed for their normal functioning. In this connection, the dependence of energy companies on imports, which has been growing recently over several decades, has a negative impact on the energy security of the Russian Federation. G4-DMA

The maximum possible utilisation of national competitive equipment in production and projects has become one of the most important principles and mechanisms of the government energy policy for energy security assurance purposes.

Federal Grid as one of the largest Russia’s consumers of high and extra-high voltage equipment has been successfully pursuing the policy of redirecting the focus on domestic manufacturers in procurement of equipment.

Programme objective

Programme objective

To build efficient and effective cooperation with manufacturers of electrical equipment to implement the policy of innovative development, energy saving and improving energy efficiency as per the Unified Technical Policy Regulation, including the following:
  • strengthening the national energy security by supporting the development of domestic producerss of electrical equipment that meet modern standards and international quality and reliability requirements;
  • promoting the development of sector’s complex innovative infrastructure, supporting innovative development and modernisation of domestic manufacturers of electric equipment;
  • creating a competitive market of electric equipment in the Russian Federation;
  • reducing the cost of purchased electric equipment through import substitution and higher localisation;
  • increasing the transparency and openness of Federal Grid’s procurement operations.

Main Principles of Import Substitution Policy G4-EC6

Economic viability

Reduction of the cost of Federal Grid’s investment programme through reduction of electric equipment prices as market-based competition evolves and up-to-date technologies for electric equipment manufacturing become more accessible to domestic manufacturers.

Social viability

includes the following: •
  • strengthening of national energy security in relation to stable provision of electrical equipment manufacturers with prime means in the presence of political, economic and financial risks;
  • country’s retention of earned value gained by electrical equipment manufacturing;
  • creating new jobs for Russian citizens;
  • promoting innovative development of the Russian economy.

Criteria for Assessment of Import Substitution Efficiency in 2015–2019:

  • increased share of domestic electrical equipment in Company’s purchases;
  • higher localisation of electrical equipment manufacturing in the Russian Federation;
  • growth of innovative products and technologies introduced into production that were developed jointly by Federal Grid Company and Russian manufacturers.

Trends in procurement of domestic main electrical equipment, %

Federal Grid’s Import Substition Programme contains the following nine groups of electrical equipment much depended on imports as import substitution priorities:

  • 110–750 kV transformers and autotransformers;
  • 110–750 kV shunt reactors;
  • 110–500 kV controlled shunt reactors;
  • 110–750 kV switches;
  • 110–750 kV circuit breakers;
  • 110–500 kV current transformers;
  • 110–500 kV voltage transformers;
  • 110–500 kV metal-clad gas insulated switchgears;
  • 110–330 kV power cable with cross-linked polyethylene coating.

The share of procured domestic equipment for the above groups in 2015 reached 75% (in 2014 it was 44.5%). G4-EC9

Implementation Risks of Import Substitution Programme

The Company acknowledges that the programme may confront the following risks during its implementation:

  • ambiguous definition of “domestic producer/ manufacturer” in the national legislation;
  • lack of legal framework that grants preferential advantages to domestic producers;
  • low competitiveness of local products caused by the decline of production and technological potential of domestic producers.

Import Substitution Programme Results in 2015

Federal Grid Company completed the following in 2015 as a part of the Import Substitution Programme:

  • Issued recommendations to amend the Company’s Procurement Regulations and standard tender documentation so that they include localisation as a bid assessment criterion for Federal Grid’s suppliers of electrical equipment.
  • Federal Grid Company is currently implementing a number of long-term contracts with leading producers of electrical equipment that envisage the manufacture localisation in the Russian Federation.
  • In order to uplevel the localisation of electrical equipment manufacture in the Russian Federation Federal Grid Company is promoting cooperation ties between manufacturers of electrical equipment and Russian producers of units, materials and components capable to provide the quality in line with international standards.
  • Provides assistance to joint projects of Russian and foreign companies.
  • Supports the launch of domestic electrical equipment to international markets. Federal Grid cooperates with electrical grids of China, India, Vietnam and Belgium in sharing the experience of electrical equipment operation, thereby raising their awareness of Russian-made products.
  • Provides assistance to enterprises that applied to the Industry Development Fund for special-purpose low-interest loans for their production expansion.
  • Attends meetings of Working Groups of the RF Ministry of Industry and Trade on import substitution issues and the Expert Panel on Import Substitution in the Fuel and Energy Sector of the State Duma Energy Sector Committee.

Plans for 2016 and Mid-Term Perspective

The import substitution focus areas are as follows:

  • further cooperation with leading foreign producers of electrical equipment to localise the equipment manufacture in the Russian Federation with respective transfer of technologies;
  • assistance to Russian enterprises in building cooperation ties, including their integration as suppliers of units and components into international production chains;
  • information support to domestic producers and their products bringing to international markets;
  • support to domestic manufacturers in research and development, engineering, construction of production infrastructure and other activities improving the existing equipment and developing new equipment, technologies and materials;
  • assistance in obtaining financial aid from the government for manufacturers implementing import substitution projects.

It is also planned to continue the interface with government agencies, expert organisations and other stakeholders in further improvements of methodological, regulatory and legal framework aimed at eliminating administrative barriers for import substitution.

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