Industrial policy is being deployed to support “external” investment projects

Due to the reduction in non-resource exports and the strengthening of secondary sanctions, the government is preparing new measures to support Russian companies operating abroad. Yesterday, amendments to the law on industrial policy were adopted in the first reading, which will make it possible to extend state support to contracts for complex investment and construction projects in “friendly” countries in order to support the presence of Russian businesses in their markets through the creation of production and logistics infrastructure. We are talking, first of all, about the allocation of preferential financing for such projects – companies are no less interested in insuring the risks of such investments. In exchange for state support, contractors will have to comply with requirements for a minimum share of products used in projects manufactured in the Russian Federation.

Yesterday the State Duma discussed amendments to the law “On Industrial Policy” – they were adopted in the first reading. The amendment to the law extends state support to complex investment and construction projects (Engineering, Procurement And Construction, or EPC contracts) of Russian contracting companies abroad. The measure is actually a response to the tightening of secondary sanctions and increasing risks for counterparties of Russian business, which also faces restrictions in access to logistics infrastructure. As a reminder, non-resource non-energy exports of the Russian Federation, as of the end of 2023, decreased by 23%, to $146.3 billion.

Projects to create bonded warehouses, zones and transport and logistics centers, industrial production and industrial clusters, as well as port infrastructure, including seaports and transport terminals, will be able to count on state support measures. At the same time, the project introduces the possibility of the government establishing a minimum cost and quantitative share of Russian products used in such projects.

The amendments do not contain a list of specific support measures – we are talking about methodological changes in the application of existing ones, which does not require the allocation of additional funding. The volume of subsidies and benefits to support EPC contractors will be separately determined within the framework of the instruments of the national project “International Cooperation and Export,” the Ministry of Industry and Trade explained to Kommersant.

Such projects are already subject to preferential lending measures within the framework of the national project – for this purpose, a subsidy was allocated to VEB.RF to support the production of high-tech products (its volume cannot exceed the volume of supplies) and to Roseximbank (part of the REC, with the support of such projects there is a condition that less than 90% of exports of products, works and services must be technological).

Against the backdrop of a revision of the export national project (the current one is limited to 2024), the preparation of new state support measures is also being considered, Deputy Head of the Ministry of Industry and Trade Viktor Evtukhov said yesterday. Deputy Chairman of the State Duma Committee on Industry Alexander Spiridonov proposed including specific support measures in the draft amendments to the second reading, as well as making requirements for the minimum share of Russian products used in them mandatory. However, according to Mr. Evtukhov, measures will be determined within the framework of each project by a separate government decree describing its implementation and specific indicators. However, support for EPC contractors will be possible when implementing projects only in a short list of “friendly” countries – the department has a list of potential projects in Tajikistan, Uzbekistan, India, Saudi Arabia, Egypt and Turkey, said Viktor Evtukhov.

According to REC Senior Vice President Nikita Gusakov, Russian contractors now compete in foreign markets not only with the quality of equipment and services, but also with financing conditions, so the most popular measure to support such projects is subsidized financing from a foreign borrower, taking into account the industry focus of the project. According to him, we can talk about increasing exports in a number of industries, including the electric power industry, oil and gas sector, and railway infrastructure. Moreover, since the end customer, as a rule, is interested in receiving a ready-made turnkey project, the export of such products is carried out mainly in the EPC structure. “Given the high capital intensity and long implementation time of EPC projects, the possibility of their implementation largely depends on the availability of effective financing mechanisms available to foreign customers,” states Mr. Gusakov.

For companies implementing investment projects abroad, support for insurance and reinsurance of risks is also important – it significantly simplifies the solution to the problem of overcompliance for complex contracts involving a large number of transactions that affect the final implementation period of the entire project, notes Managing Director of the Russian Union of Industrialists and Entrepreneurs, Executive Secretary of the EAEU Business Council Sergei Mikhnevich. Now companies are faced with the risk of failure of large contracts due to complications in all transactions, says Kommersant’s interlocutor in the market.

Executive Director of the Association of Industrial Parks of Russia Denis Zhuravsky notes that the creation of points of industrial presence abroad has intensified recently – infrastructure is being created for new directions of Russian cargo flows in the form of both warehouses with certain customs services and production facilities of industrial parks. In some countries, the creation of professional industrial parks with Russian participation is currently underway: in Egypt the site is in the design process, in Uzbekistan several parks have already been created, in Tajikistan the project is just being “structured”, joint sites in India, Turkey and Saudi Arabia are being actively discussed. The creation of a distributed special economic zone with several sites in China and Russia, a single digital trading platform for mutual payments and a two-way ERP system for tracking the movement of goods is being discussed with China, he adds. However, it seems much more effective to create a “seamless” space for investors from countries that retain the desire to work constructively with foreign partners, Mr. Zhuravsky believes.

Lawyers interviewed by Kommersant speak primarily about the sanctions risks that Russian projects and investments face, as well as the risks of changes in legislation both in the Russian Federation and abroad – even in supposedly “friendly” countries it can be quite difficult to find banks and consultants who will be ready to help in the implementation of the project, and the range of countries itself is “more complex than just friendly and unfriendly,” says Maxim Kuznechenkov, partner in the real estate and construction practice of Melling, Voitishkin and Partners. B1 partner Ilya Skripnikov expects that the effectiveness of projects will depend primarily on the availability of intergovernmental agreements and working instruments for insuring the risks of project implementation. In addition, large-scale and long-term projects abroad may depend on supply chains – even supplies established under the current sanctions may change, be interrupted or become more expensive with the development of sanctions regulation and the practice of its application, notes the head of the department of taxes and law of DRT, Yuri Khalimovsky, – here it was insurance against relevant risks would be in demand, similar to the types of insurance already provided by the REC.

Tatiana Edovina, Diana Galieva