Engineering & Mining Journal

OCT 2018

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Page 57 of 91

RUSSIAN REPORT 56 E&MJ • OCTOBER 2018 Facing the first international sanctions in 2014, Russian authorities declared a goal to cut import-dependence on mining equipment from the U.S. and other NATO countries. At that time, top government officials saw a threat that, following the annexation of Crimea, the country could be hit with the same cocktail of restrictive measures that Iran was subjected to over its nuclear weapons program. Particular concerns were voiced that the Russian banks possibly could have been cut off from the SWIFT network. With this background, Russian gov- ernment started work aimed to decrease the import-dependence of the domestic mining industry. In 2014, the Russian Industry and Trade Ministry designed and adopted a program titled, "Heavy Vehicle Construction" that became a part of a ma- jor federal project that targeted to improve the competitiveness of the national ma- chine-building industry. Within that pro- gram, the ministry set the target to raise the share of the Russian mining equip- ment on the domestic market to 40% by 2020, as compared to 30% in 2014. The import-replacement goals on min- ing machinery were not as ambitious as the ones set in the other areas of the national economy, since at that time, the industry was in a deep depression. Research con- ducted by the Moscow-based National University of Science and Technology (MI- SiS) showed from 2011 to 2015, Russian production of mining machinery shrank by nearly 60%, with the production of some types of equipment, for example shear- er-loaders, was completely stopped, driving down the average occupancy factor of pro- duction capacities in the country by 25%. In 2015, the Russian Industry and Trade Ministry published a detailed plan on what machinery and to what extent the import-dependence must be reduced by 2020 (Table 1). To support Russian man- ufacturers, in 2014, Russian President Vladimir Putin ordered the government to establish an Industry Development Fund that has been allocating money from the federal budget as soft loans to the Rus- sian companies who expressed interest in designing, developing or manufacturing any kind of equipment or technology that then was primarily imported. Denis Manturov, the industry and trade minister, estimated that from 2015 to 2017, the fund allocated loans of some Rub250 billion ($4.1 billion) in total un- der the various projects, primarily in the area of automotive industry, agricultural, special and mining machinery. The real results of that program are yet to be seen. According to Manturov, with this money, Russian companies have started man- ufacturing competitive products within 350 different projects. Another 780 proj- ects launched by the Russian equipment suppliers over the past two years, the new competitive products are expected to hit the market between 2018 and 2020. In addition, a strong impetus for the further import-replacement in the indus- try was given by the U.S. President Donald Trump administration in March with intro- duction of what originally was supposed to be toughest sanctions the U.S. had ever imposed on Russian miners. Russian aluminium giant Rusal was banned from doing any business with U.S. companies, including making payments through the U.S. banks, for as long as it is owned or controlled by Russian billionaire Oleg Deripaska. Those sanctions in their orig- inal form prevented Rusal from making any business with Western companies, including purchasing mining equipment. Although, the U.S. Finance Ministry later announced it was considering reliev- ing Rusal of penalties, the tension in the Russian mining industry persists, as those sanctions against Deripaska seemed to come out of nowhere. They were based on the earlier reports on Vladimir Putin's clos- est allies prepared by the U.S. government agencies and these reports contained several other names of powerful Russian mining tycoons. As the political conflict between Russia and U.S. shows no signs of winding down, there are real fears in the industry that at some point miners would be subjected to new restrictive measures, so in this regard it would make sense to begin import-replacement of mining ma- chinery sooner, rather than later. Importers Concerned A marketing study released by the Russian consulting agency miner in early 2017 showed the import replacement program Russia's Import Replacement in Action New sanctions and weak foreign exchange rates create a fertile ground for the Russian mining machinery suppliers to compete with the recognized world leaders By Vladislav Vorotnikov Designed and manufactured by IZ-Karteks, the EKG-20KM is one of the newest Russian machines.

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