Producers can occupy niches left by foreign companies

The situation in the world challenges Russian production and forces us to look for new solutions. Vedomosti. The Сity talked to Vladislav Ovchynsky, Head of the Capital’s Department of Investment and Industrial policy Department. He explained why, in his opinion, business should be interested in cooperating with the city.

– One of the most important topics now is import substitution. Moscow develops it through the conclusion of offset contracts. How do they work and why should business be interested in this format?

– In contrast to the other state procurement mechanisms, offset provides not only delivery of goods to the customer, but also counterpart investment obligations - creation, modernization or development of production of necessary goods. The contract is for a period of up to 10 years, and the goods must be of Russian production.

The advantage for business is reliability, as the capital is one of the largest state customers. In addition, the investor receives a guarantee of long-term sales of their products. After the completed investment commitments, the company is included in the regional register of the only suppliers.

In this case, business can count on benefits from the city: land for the location of production, reduction of taxes, rental rates for land and subsidization of up to half of the cost of connection to the network.

The offset contract is an import substitution in social spheres for the city, as well as stimulation of investments in the real sector, localization of production, increase of industrial safety, creation of jobs, increase of the taxable base and reduction of expenditures on public procurement.

– Moscow was one of the first regions that introduced the offset contract system for the work with investors. How many contracts has the city managed to conclude and in which industries? 

– We have already concluded five offset contracts. The total volume of private investment is almost RUB 13 bn. The city will buy products from manufacturers for RUB 72.7 bn. Offset contracts have been concluded in such fields as pharmaceuticals, medical products and dairy foods. 

– Tell us more about these contracts.

– In 2017, we concluded such a contract for the first time - with the biotechnological company for the development and production of Biokad drugs. Under an offset contract, it produces 34 original medicines for cancer, multiple sclerosis and orphaned diseases. In September 2020, the investor commissioned the first stage of the plant in the territory of the Technopolis Moscow special economic zone in Alabushevo. Under the contract, the city purchases medicines produced at the enterprise, totaling RUB 14 bn. The company has been supplying medicines to medical institutions of the city since last year. Thus, in 2021 and in the beginning of 2022, more than 390,000 packs of drugs were delivered.

We signed another contract in 2018 with the R-Oprah pharmaceutical company. Until 2023, it will create in the city the production of drugs for the treatment and prevention of endocrine, oncological and cardiological diseases.

The third contract was signed with the Gemamed company at the end of 2019. The import substitution production of medical products for dental patients has already been created. The products have been tested and their deliveries have begun.

Another contract in the field of health care is with the Moscow endocrine plant. Antiglaucoma, antibacterial, analgesic, antidepressants and antileptics will be available there.

Moscow has also concluded an offset for the production of baby food for the city’s dairy distribution points. Production of products for mothers and children goes smoothly and allows to cover the needs of Muscovites.

– Are these contracts make sense?

– They showed efficiency in terms of budget savings. The average decrease in prices for the products supplied to the city compared to market analogues is 20%. In addition, such a public-private partnership mechanism gives confidence in the future of both the producer and the city. 

– Moscow plans to lower the minimum threshold for offset investments in order to attract more enterprises and firms. What is it for?

– Previously, the minimum amount of investment was at least RUB 1 bn. Now it can be reduced to 100 m RUB. What impact does this have to the city? First, it allows to increase the rate of creation of import-substituting industries is essential in the current economic environment, as well as not only large but also medium-sized businesses will be able to build enterprises in exchange for long-term purchase of products. Moscow will also have the opportunity to sign offsets together with other regions of the country. 

– Will there be offset contracts for services? If so, what are those? 

– Yes. Amendments that were adopted last year will enter into force on 1 July. They fall within service sector. Under the offset contract, the investor must create or reconstruct the facility used to provide the service, which would give the city new jobs. Among the most promising spheres for offset contracts are communication services, such as infrastructure for 5G network development, exoprosthesis, recycling and waste disposal. Another direction is charging stations for an electric transport. 

– As for supporting the capital’s business under sanctions, the city government has decided to extend the practice of offset contacts to all areas. Which spheres will it affect?

– We believe that now manufacturers have an opportunity to occupy the niches that have arisen after the departure of foreign companies from the Russian market. If we allocate perspective spheres, we could name, for example, transport engineering, appliances for housing and communal services, IT-equipment. 

– In terms of public-private partnerships, how developed is this tool in the capital?

– Moscow was one of the first to use various forms of PPP-cooperation. Since 2013, more than 250 contracts have been concluded in Moscow. Moscow is one of the first countries to use PPP-cooperation. Their total volume exceeds RUB 1.1 tln. Among them are concessions, life cycle contracts, long-term contracts with an investment component.

Today, investors and Moscow have concluded 7 concession agreements with an investments of almost RUB 120 bn. For example, oncological and geriatric centers, modern general education school in Skolkovo will appear in the city. In addition, the construction of the Kutuzovsky Avenue North understudy is being actively carried out, and work is under way on the implementation of housing and communal services projects related to the environmentally friendly recycling of sludge from sewage. 

Such a relationship format is beneficial to both sides. It allows to develop socially significant infrastructure at the expense of the investor. In 2021, the number of PPP-contracts increased by more than RUB 100 bn. 

One of the main capital’s advantages is that the PPP-project can get tax relief on profit, property, land tax and at the rate of rent of the land. 

– If we talk about PPPs in the new reality, do companies, which cooperate with the city, get preferences? 

– The location of production in the capital opens a wide market to investors, reduces the cost of transport logistics, as well as the cost of production through the possibility of using local components.

There are anti-crisis measures to support the economy in the capital. They emerged with the needs of industrialists and investors. Business discussed these measures with representatives of the city at the meetings. In general, the aggregate amount of federal and municipal anti-crisis measures taken to support industry is unprecedented, now it is necessary to use them correctly. 

– Will these projects be useful for the ordinary citizens? 

– The implementation of investment projects will create a comfortable environment in the city. We see that in almost every region compact, environmentally friendly production facilities have been established or are under construction. This not only leads to workplaces being near the home - which is important because it allows citizens not to spend hours on the road from home to work and back - but also leads to the development of various related businesses (for example, cafe near businesses, logistics companies, etc.) social infrastructure and much more. The city becomes even more comfortable for life, work and recreation.

Source: Vedomosti