In a response to EU and U.S. sanctions, banning imports of high-technology Western equipment for a number of areas of the Russian oil and gas sector, Russia’s Trade and Industry Ministry and Energy Ministry developed a program for imports replacement. On Oct. 14, the ministries submitted the program to the government. Counting in the so-called concealed imports by Russian subsidiaries of foreign companies, the share of imported equipment and technologies reaches 80 percent, and in certain projects it can top 90 percent, RBC Daily newspaper reported citing the two ministries’ program.
The share of imports in the pipeline valves sector is lower than in the oil and gas industry on the whole, and according to the Scientific & Industrial Valve Manufacturers Association (NPAA), at present it stands approximately at 55 percent. “Until 2010, the valves market had been growing approximately by 13-15 percent a year. But this growth took place mostly on account of imports. Domestically, the monetary volume of the market was growing, while its physical size remained virtually the same, staying within the range of 23-25 million product units per annum,” NPAA executive director Ivan Ter-Mateosyants told OGE.
Тhe tendency to reduce utilization rates at Russian valve manufacturing plants began in 2012, and picked up pace in 2013. Before this happened utilization rates were rather high, close to 75 percent. “In my opinion, this has to do with large amounts of funds that had been diverted to preparation of the [Sochi Winter] Olympics. The sector was hoping that after the Olympics things would go back to the way they were and the valves market would start to surge again, but due to the situation in Ukraine there was no boost and the decline continued, though at a slower pace. In terms of results, we haven’t wrapped up 2014 yet¸ but according to experts’ expectations, the decline will range from 3 to 5 percent,” said Ter-Mateosyants.
While Russian manufacturing facilities stood idle, foreign producers took advantage to fill the gap. Despite the adopted policy to step up imports replacement, the outlook more or less remains the same as major oil and gas producers hardly intend to change their buying habits in the near future, thinks Ter-Mateosyants. “Our key customers such as Rosneft, Transneft and Gazprom have already announced cutbacks in their investment programs. Foreign financing is no longer accessible due to the sanctions, and we’ll not be getting this money indirectly,” he said.
Betting on Domestic Valve Producers
However, slashed financing isn’t the only matter of concern here. Market players maintain that for the Russian valve manufacturers the main problem is the lack of information from customers regarding their needs, as well as the lack of transparence in purchasing deals.
“Today, customers keep talking to Russian manufacturers in the “over the counter” manner: “You make your product first, and we’ll then decide whether to buy it or not.” No one is going to take a risk and bear the costs on such terms. However, the financing issue is the