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2019 October 11

Import substitution prospects

The work on RF Government Decree No 719 on import substitution in shipbuilding is underway for the fourth year. However, shipbuilders, ship owners and equipment suppliers have not yet decided if it gives an impetus to Russian industry or presents an extra barrier for fleet development.

The Ministry of Industry and Trade has developed a new version of the Decree No 719 in the part of requirements for shipbuilding products. According to the draft document the criteria to define products as of Russian origin will be set forth for pod propulsion units. Besides, the document covers such aspects as period of validity of related certificates and applicability of requirements depending on the phase of construction.

In many cases, amendments into the Decree take into consideration the capabilities of the Russian industry to produce shipboard equipment analyzed by CNII Kurs, author of an e-system for shipboard equipment known as Shipboard Equipment Center (SE Center). It actually assumed the role of an integrator for a practical implementation of the import substitution programme having received RUB 120 million for establishment of SE Center in 2017.

The industry representatives have different opinions about ES Center. Many ship owners and shipbuilders think the newly created base is not complete and impracticable (this opinion was expressed by several ship owners at the roundtable meeting “Import Substitution in Russian Shipbuilding: Ambition and Reality” held by IAA PortNews on August 29, 2019 in St. Petersburg. Russian manufacturers of shipboard equipment are positive about this project but do not hope much for promotion of their products by it focusing primarily on their own marketing strategies. Regulatory authorities seem to consider the SE Center project as an additional, or, rather the only opportunity to report on implementation of the import substitution programme.

Despite ambiguity about practical steps of RF Ministry of Industry and Trade towards import substitution in Russia, the SE Center will get additional finances. The Ministry has announced a competition for works under SE Center-2 project with initial (maximum) price of RUB 140 million. As IAA the Ministry told IAA PortNews, this amount is needed to maintain and develop the e-system currently numbering more than 500 companies and 7,200 products. CNII Kurs is highly likely to be awarded with that contract and to remain the flag-bearer of import substitution in shipbuilding.

SE Center in details

SE Center was initially expected to create a unified base of manufacturers. Not only was it supposed to distinguish positions with no dependence on imports but it was to contribute to popularization of Russian products through availability of their characteristics. The idea was to facilitate the growth of demand for products of Russian origin, increase product availability and find ‘bottlenecks’ for further debottlenecking of certain segments.

However, the practice shows a low demand for the website – a web counter registers about 50 visits per day. The base expansion with new manufacturers is also questionable with no control of their information reliability.

The proposals on amendments into Decree No 719 are published on the official portal for legal information (https://regulation.gov.ru/). However, it provides no roadmap or discussions. Moreover, declared as a single-window system for import substitution in shipbuilding it offers a platform for discussions but there are no discussions there.

SE Center has accumulated a considerable number of domestic companies within a single base but most of them manufacture components but not shipboard equipment or systems as a whole. Only 105 manufacturers of 511 registered in the base present their products. Some companies are undergoing bankruptcy or supervision, some ceased to exist. Perhaps, it is data updating that is to be covered by additional state financing.

Initiative from the Center


One of bright examples of SE Center’s activities today is the development of criteria for pod propulsion units (PPU) included in the new version of the Decree.

According to the website of SE Center, there is only one company in the Russian Federation producing pod propulsion units. However, this company has delivered only one PPU so far. According to the company’s website, that was a PPU for a tugboat of Project 23470 delivered in June 2018. Thus, one delivery was enough to include PPU criteria in new version of the government’s Decree. We can only hope that the lawmakers will not decide it is sufficient to consider the issue of PPU production in Russia settled.  

According to the sources of IAA PortNews, at least two more companies registered in Russia are going to add their PPU to the SE Center base. Perhaps, that will improve the situation

Draft Decree No 719 in practice

Since the first version of Decree No 719 for shipbuilding products was approved in 2017 and after its amendment in March 2019, there has been no information on any Russian civil ship to obtain a statement on compliance with the document requirements. One of the reasons for low activity of shipbuilders in this context can be insufficient methodological support of the document developers.

Meanwhile, many of domestic shipyards are looking for shipboard equipment of Russian origin on their own, without using the base of SE Center.

A thorny way towards a large-scale import substitution in shipbuilding can pay off, as the Ministry of Industry and Trade believes, with a new technical design for a multipurpose dry cargo carrier of river/sea class. An open competition for the R&D work “Development of a technical design for multipurpose dry cargo carrier of mixed river/sea navigation” was announced by the Ministry of Industry and Trade in September 2019. Maximum price of the contract – RUB 50 million. Source of financing – federal budget.

Since the design is to be ready by November 2020, it should fully comply with import substitution regulations, particularly include diesel plants, boilers, PPU and other shipboard equipment of domestic origin, which seems to be impossible so far.

It should be noted that numerous industry experts and top managers of large shipbuilding projects have recently expressing the same idea: imposing import substitution without going beyond Russia is not practical.

It is necessary to develop exports of Russian equipment to other countries. It is the expansion of sales markets that leads to expansion of series production and, consequently, to reduction of expenses for production and after-sale services.  

Photo from Science & Engineering website

Sofia Vinarova