Vladimir Shlyomin

F

rom the beginning of the 1990s the Russian production of equipment for the country’s oil-and-gas complex was steadily falling down. In 1999 the trend radically changed and in the next several years this sector was the most dynamically developing one in Russia’s engineering industry. Annual production volumes at some enterprises were growing up several times as much. The rapid upsurge was spurred up by oil companies, which significantly increased their orders for equipment.
However, since the fourth quarter of 2001 the slump has been back again. According to the Russian State Committee on Statistics, in 2002 the production volume in the chemical and oil engineering sectors amounted to 82.2 % of the previous year’s level. In the first quarter of 2003 this index went down by 17 %. Many producers of oil-and-gas equipment have found themselves in crisis again. It is noteworthy: the new downturn is taking place against a background of high world prices for oil and, accordingly, growth of oil companies’ earnings.
Experts consider it one of the signs of the general decrease in investments by Russian oil companies in the national economy and intensification of activity of foreign producers in the Russian market. Some oil companies are refusing to purchase large batches of equipment at open tenders and more often are giving preference to similar foreign bidding.
One of the objective problems in the oil engineering is due to the loss of the traditional design and production base. Following the breakup of the USSR a considerable part of specialized enterprises "went abroad", so to say. For example, the production of oil field equipment remained in Azerbaijan.
Market needs prompted other producers to switch over to this kind of business. The oil engineering production was taken over by some leading companies of the military industrial complex, such as Uralvagonzavod, Votkinsky zavod, Volgogradskoye Production Association Barrykady, Chelyabinsk’s Stankomash, Zelenodolsky zavod, Nizhnegorodsky mashinostroitelny zavod, Motovolikhinskiye zavody, Voronezhsky mekhanichesky zavod and others. At first, it seemed that things would go all right. The high technological discipline immediately provided the perfect quality of the equipment production. However, the lack of specialized experiences did not allow them to raise the technical level. Those military industrial enterprises were just copying available samples.
The absence of advanced developments led to a situation, when a considerable part of equipment in the Russian oil industry became morally outdated. As Alexander Romanikhin, the president of the Union of oil-and-gas equipment producers, insists, in 30 years domestically produced machinery for routine and major repairs of oil wells went just minor design changes. It results in a low productivity of round-trip operations. Mean-time-between-failures of Russian-made sucker-rod pumps are considerably lower than the ones of similar foreign equipment. The amount of advance by a foreign rotary drill bit is several times as much as the one by the home-made instrument. On a whole, the labor-intensiveness of operations with the Russian equipment is approximately twice as high. That is why the "unpatriotic" aspirations of Russian oilmen become quite understandable because they are ready to pay more but to purchase the better.
Russian producers of equipment are obviously giving way to their foreign competitors at the next stages as well and, in particular, in marketing and servicing. Having no possibility to use bank backing (the credit-against-goods or tied credit system still is not properly formed in Russia and banks do not have sufficient funds) they are usually selling their products only on condition of full prepayment. The leasing of oil-and-gas equipment in Russia has very specific features: an oil company has to found its own leasing firm and makes purchases just for the sake of minimizing the tax burden. Against this background Western suppliers, who offer various privileges and convenient ways of payment as well as a wide range of modern servicing, are just doomed to success.
However, Russian engineering producers have at least one obvious advantage and that is their immediate closeness to the market. This is a good basis for projects with participation of foreign capital and technologies. Nevertheless, in the opinion of Alexander Romanikhin, the process of setting up joint ventures is too slow. He believes that the reason is in specifics of the Russian tax system, which instead of promoting development of the domestic engineering keeps doors wide open to import. Custom duties for different types of imported oil-and-gas equipment amount to between 5 % and 10 % and this, of course, is an admissibly low level.
There are still no solutions to problem connected with the Russian participation in projects based on production-sharing agreements (PSA). The typical example is the discrimination of Russian contractors at the tender for constructing the shore pipelines under the Sakhalin-2 project, when establishing consortia with a mandatory participation of foreign partners was set as a major tender condition. As far as works on constructing surface pipelines are concerned, this requirement seems unjustified because Russian construction companies built on their own thousands of kilometers of modern pipelines.
No longer than two years ago Elena Zolotareva, the head of the Moscow mission of the Sakhalin Energy Investment Company (Sakhalin Energy), which is implementing the Sakhalin-2 project, said that giving orders to Russian enterprises was a problem, which was beyond any discussion. "After all, Aeroflot is purchasing foreign planes too", noted Zolotareva.
The analysis of the contract strategy of Sakhalin Energy shows that the preferences given foreign contractors have already resulted in a considerable project budget overdraft. By results of the first tender Sakhalin Energy received contractors’ offers, which much exceeded the budget funds for constructing pipelines adopted by the Supervisory Council. The company chose a contract with the total cost of $1.3 billion. When a number of contractors proposed alternative tender terms and the declared cost of works under the tender went down to $1.1 billion but, at the same time, some preferences for Russian producers emerged. So, the proposal was turned down.
The discrimination of Russian participants also becomes apparent, when the size of guarantees to do the complete volume of works is determined. These guarantees are considerably higher than the generally accepted standards used in implementing similar international projects. If a 10 % bank guarantee is quite sufficient for a foreign participant of a consortium, the guarantee for a Russian participant is to be 70 %.
However, there are also examples of more favorable treatment of Russian producers in the oil-and-gas complex. For instance, Russia’s largest oil-transporting concern Transneft is trying to use precisely Russian-made equipment for its needs. Annually the company directs over 30 % of its funds for scientific research and engineering development so as to substitute import. Since 2000 Russian enterprises have developed under these programs and started the commercial manufacturing of products of 62 types. Among these developments the following ones are worth noting:
– transfer pump units of increased reliability, pumping-transportation motor vehicle;
– pipes of increased reliability (in 2001 10,000 tons of news pipes were produced);
– machinery and equipment for overhauling;
– electric drives (their production allowed to completely give up purchasing Austrian, British and Japanese electric drives);
– complex of equipment for extinguishing fire at oil-transfer stations and tank parks through underlayer fire-fighting.
Some of developments have nothing similar in the world.
Vladimir Kalinin, the first vice president of Transneft, says that works are underway now to implement the program to set up the company’s diagnosis center of promising developments. The program provides for modernization of existing and development of new in-pipe diagnostic devices. Russian scientific organizations and enterprises are also enlisted to take part in its implementation. The goal is to achieve a full independence from supplies of foreign instrumentation and technologies. The modernization of diagnostic instrumentation has already permitted to increase the interval of inspecting a pipeline in one pass from 140 km to 280 km.
In Kalinin’s opinion, making stake on cooperation with the national industry is quite justifiable. That is why the company’s strategic direction is to support Russian producers of equipment and materials for the oil-and-gas complex.