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26 Mar

Our task is to increase product localization

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Svetlana Ganeeva, CEO of Moscow City Investment Agency, - in Investments with Marat Kashin

Svetlana Ganeeva

Moscow takes over additional obligations to investors: the city began to enter into offset contracts with them. For businesses, this is a guarantee for many years to come. How does it work and who is Moscow ready to cooperate with on such special terms? Marat Kashin, a Kommersant FM host, talked about it with Svetlana Ganeeva, CEO of Moscow City Investment Agency.

- What are the offset contracts and how do they differ from regular ones?

- The offset contract is practically an ordinary procurement contract; it operates under the well-know Federal Law №44. Its main difference is that there are additional requirements for the supplier who shall not just supply but produce the goods. This requires either building a new production facility, creating it right from scratch, or upgrading an old one that already exists. So, it is a supply contract that includes additional terms and conditions. The other conditions are the same, i.e. it is a tender, and there are tender criteria to be met.

- What conditions does an investor has to meet in order to be awarded an offset contract? Why did Moscow sign only five such contracts so far? Lots of applicants? How strict is the selection process?

- The selection is strict. And the additional criteria are always penalties in case the winner fails to meet the required conditions. But they are not stricter than in conventional procurement. There is only one special requirement for offset contracts - it has be a confirmed supplier of Russian products. This is what this scheme is used for by the authorities, i.e. our task is to increase the localization of products, attract investors, and ensure import substitution in those areas where we are able to create a competitive production.

The tenders are open, they are published on websites. We set the price at 70%, all other criteria remain the same - quality of supply, manufacturing experience, because applicants should not start from scratch, especially in hi-tech production. This is a fairly new legislation, the law was amended accordingly in 2016 only.

We understand that Moscow is the leader. I think that the main factor is the minimum amount of investments required, it is currently RUB 1 bn. This is quite a high threshold. We know that The Federal Government is considering a possible lowering of this threshold, and we support this initiative. It will expand our access to interesting companies that are willing to present their products.

What other changes are being considered? We participated in round tables offering joint tenders, such practice already exists for regular procurement. However, it is not specifically provided for in the legislation for offset procurement, although it seems not to be limited. Thus, the access to the procurement needs of several regions with a pooled budget will make the business and financial model more attractive for investors. Our analysis shows this result.

- Why does the city benefit from such contracts as well?

- The city will get tax revenue, because a new producer will come to our region,  new quality jobs with good salaries, and economic security, because it is our supply, we do not depend on external suppliers, who have production today and do not have it tomorrow. These are long-term commitments that are also guaranteed by additional financial liabilities and penalties. And that's the economic security.