Market Research

Business Opportunities for Swiss Suppliers in Chemical Industry in Russia

MARKET RESEARCH

OFFICIAL PROGRAM PARTNER

Contents

1. EXECUTIVE SUMMARY ______3

2. INDUSTRY OVERVIEW ______3

3. INVESTMENT IN THE INDUSTRY ______10

4. PERSPECTIVES FOR THE SUPPLY OF GOODS AND EQUIPMENT FROM SWITZERLAND ______11

5. CONCLUSIONS AND RECOMMENDATIONS 16

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1. Executive summary

The chemical industry is one of the sectors in focus of the import substitution plans of the Russian government and the Russian authorities put much effort into convincing domestic and foreign manufacturers to invest into the modernization and the expansion of local production. Their goal is to develop the manufacturing of Russian products that are to replace imports («import substitution») and as a consequence an increase in domestic production («production localization»).

The present report by the Swiss Business Hub Russia shows that the ongoing investments in the modernization and expansion of local production in the chemical industry offers numerous opportunities for foreign suppliers, including Swiss companies.

In total, the research done by the Swiss Bussiness Hub reveals that there are at least 47 major investment projects in preparation, which are of interest for Swiss suppliers.

2. Industry overview

The Russian chemical industry market in 2017 is estimated at the level of 2,290 billion rubles or 34,682 million euros. Russian production amounted to 16,810 million euros, while imports accounted for about 17,870 million euros.

Dynamics and structure of the Russian Federation’s chemical sector. Russian and foreign manufacturers, 2014-2017, mln EUR, bln RUB

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About 52% of the total volume of chemical products consumed in the Russian market consists of imported products. This is a slight decrease in the share of imported products in monetary terms compared to 2015 (56%).

In monetary terms, the main chemical substances (fertilizers, polymers in primary forms and rubbers) accounted for 54% of the total volume of Russia’s chemical market. The share of washing, polishing, perfumery and cosmetic products in the sector structure was 20%, paints and varnishes – 7%, plant protection products – 4%, artificial and synthetic fibers – 2%, and other chemicals – 15%.

Dynamics and structure of the Russian chemical sector in terms of product types, 2014-2017, mln EUR

The share of foreign production accounts for more than half of the volume in almost all sub-sectors of the chemical industry in Russia, including: 2017

Basic chemicals 50%

Plant protection means 62%

Paints and varnishes 50% Washing, cleaning, polishing, perfumery and cosmetic substances 45%

Artificial and synthetic fibers 51%

Other chemical products 65%

In 2017, the share of Russian production in the total market volume exceeded 50% in only the synthetic detergents production segment.

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In monetary terms (in rubles), the Russian chemical products market demonstrated positive dynamics over the period between 2013 and 2017, reaching 2,290 billion rubles by 2017, which is 49% higher than in 2013. The volume of domestic production on the market increased by 48% in 2013-2017 and import by 49% (in rubles).

The market volume in euros, as in other sectors in the Russian Federation, decreased in the period of 2013-2016 due to a significant drop in the national currency value in 2014-2015. (A decrease of 24% was observed.) In 2017, the market showed a positive trend in European currency as well (up 24% to the level of 2016).

The total share of imports in the chemical industry in Russia was 51% in 2013, but in 2014 and 2015 it increased to 55% and 56%, respectively. By 2017 it again decreased to around the 2013 level – 52%.

In the context of selected sub-sectors, in 2013-2017 the following changes in the ratio of domestic to foreign products occurred: ▪ Main chemicals – an increase in the share of imports from 46% in 2013 to 52% in 2015 and then a reduction to 50% by 2017; ▪ Plant protection products – reduction of imports from 68% to 62%; ▪ Paints and varnishes – reduction of imports from 57% to 50%; ▪ Washing, cleaning, polishing, perfumery and cosmetics – reduction of imports from 57% to 45% ▪ Artificial and synthetic fibers – growth of imports from 46% to 51%; ▪ Other chemical products – growth of imports from 61% to 78% in 2013-2015 and a reduction to 65% by 2017. The structure of the Russian chemical market in terms of product types remained virtually unchanged during 2013-2017.

The Russian chemical industry as a whole is characterized by a rather high share of exports – 51% of domestic production in 2017, or 17,750 million euros. (In 2013-2015, the share of exports in European currency increased from 52% to 60% respectively; in 2016 -2017 it was 51%.) Most of this volume is accounted for by the export of basic chemicals – 15,147 million euros worth in 2017, accounting for 85% of total Russian exports and 62% of Russian production in this sector.

A relatively high share of exports also characterizes the market of other chemical products – about 36% of the total production in in 2017. Despite the growth in exports in absolute terms (from 847 million euros in 2015 to 1,000 million euros in 2017), there has been a decline in the share of exports in this segment – from 50% in 2015 to 36% in 2017.

The export of washing, polishing, perfumery and cosmetic products amounted to about 1.2 billion euros in 2017, or 24% of Russian production (in 2013 – 744 million euros or 23%, in 2015 – 673 million euros or 21%).

The export volumes of other types of chemical products are relatively small: • Paints and varnishes – 206 million euros (15% of Russian production); • Means of plant protection – 130 million euros (22% of Russian production); Artificial and synthetic fibers – 34 million euros (12% of Russian production).

Industry issues

The most problematic sub-sectors in the Russian chemical industry are chemical fibers and threads production as well as low- tonnage chemistry.

Among the main reasons behind the backlog of the production of chemical fibers and threads in Russia is the lack of raw materials. A high level of supply of raw materials is observed only in the production of polyamide, polypropylene and polyacrylonitrile fibers and threads. The remaining segments are provided with raw materials, either partially or completely, using foreign raw materials. In particular, this applies to polyethylene terephthalate (base for the production of polyester fibers and threads), as well as polyamide 66 (base for the production of cellulose and anilic threads).

The share of low-tonnage chemistry in the production of the chemical complex of Russia is no more than 5% (compared to 28- 33% in developed countries) with the share of imports in the consumption of such products at 70-100%.

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Key players in the chemical industry

Revenues, mln RUB Revenue, Company 2016, Main products Website 2013 2014 2015 2016 mln EUR Apatit 46,559 55,665 97,406 102,928 1,332 Extraction and dressing of apatite- Murmansk (PhosAgro) nepheline ores from the Khibiny region deposits; Production of apatite and www.phosagr nepheline concentrates, as well as o.ru/about/ho other mineral concentrates – syenite, lding/item49. sphenic and titanomagnetite; An php enterprise of the PhosAgro holding company Kazanorgsintez 46,134 54,483 68,599 75,411 976 Produces over 38% of all Russian Republic of polyethylene and its largest exporter; Tatarstan Production of gas-conducting www.kazanor polyethylene pipes, phenol, acetone, gsintez.ru cooling liquids, and chemical reagents for oil extraction and natural gas drying Bashkir Soda 24,203 27,321 33,459 39,141 507 Production of soda ash and baking Republic of Company soda, PVC and caustic soda, cable Bashkortostan plastic; Sole manufacturer of www.soda.ru terephthaloyl chloride, anodes with ruthenium-iridium coating and cationic polyelectrolyte flocculants KuibyshevAzot 28,045 30,873 38,092 37,911 491 Produces caprolactam and its Samara region processing products (polyamide-6, www.kuazot.r high-strength technical and textile u threads, cord fabric and engineering plastics), ammonia and nitrogen fertilizers, and technological gases Polyplastic 17,759 20,240 21,335 24,095 312 A leader in the development and www.polyplast Group production of polymer pipes and ic.ru engineering plastics in the CIS countries, this group consists of 16 enterprises in Russia and the CIS Avgust 10,160 11,743 15,772 20,909 271 Chemical means of plant protection for Moscow agricultural production www.avgust.c om/company/ Nefis Cosmetics 9,970 10,869 12,883 18,048 234 One of Russia's largest producers of Republic of (Part of Nefis everyday goods for mass consumption, Tatarstan Group) fat and oil products and household www.nefco.ru chemicals Metafrax 13,192 13,439 16,644 17,703 229 Group of companies. The largest Perm Krai producer of methanol and its www.metafrax derivatives .ru/ru/ Shchekino-azot 11,768 14,799 17,124 16,838 218 Produces industrial and household Tula region chemicals, linoleum, products from n-azot.ru polyamide threads and chemical equipment Kaustik 11,902 12,549 16,216 16,595 215 Production of synthetic hydrochloric Volgograd acid, commercial chlorine, liquid and www.kaustik.r

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Revenues, mln RUB Revenue, Company 2016, Main products Website 2013 2014 2015 2016 mln EUR solid caustic soda u/rus/ Omsk Carbon 12,865 14,320 14,931 13,855 179 Group of companies producing carbon Omsk Group black www.omskcar bongroup.com Schelkovo 5,408 7,727 9,965 12,879 167 Production of pesticides for the Moscow Agrohim integrated protection of important region agricultural crops and agrochemicals www.betaren. with a high content of trace elements; ru More than 120 products Synthez- 11,378 11,952 13,885 12,860 166 Production of high-quality isoprene Republic of Kauchuk rubbers for general and special Bashkortostan purposes. The main products are kauchuk- synthetic cis-isoprene rubbers, str.ru synthetic epichlorohydrin rubbers and catalysts. North-Western 4,115 4,888 9,820 12,108 157 Phosphate raw materials for Acron Murmansk Phosphorous Group; Shipment of apatite region Company concentrate to outside consumers www.szfk.ru (NWPC) Penoplex 6,582 7,644 9,105 11,037 143 Producer of construction and Saint- decorative and finishing materials Petersburg based on polymers, heat-insulating www.penoplex materials and polystyrene .ru Omskshina 9,504 8,197 8,371 9,985 129 Manufacturer of tires for trucks, buses Omsk and trolleybuses, as well as for special www.omsktyr equipment; Included in the holding e.ru Cordiant Altay Tire 3,674 5,085 8,120 9,508 123 Manufacturer of tire products; Second Altai Territory Combinat place in Russia in terms of output of ashkom.ru (ASHK) agricultural tires and third place in the production of truck tires for trucks Arnest 4,207 4,900 6,913 8,895 115 Producer of perfumery and cosmetic arnest.ru products; Two production sites: Arnest (Stavropol Territory) and Aerosol Novomoskovsk (Tula Region) Khimprom 5,669 6,019 7,070 8,455 109 Production of hydrogen peroxide, Chuvash chlorine products and rubber Republic chemicals used in the production of www.himpro tires by both Russian and foreign m.com leading manufacturers Sterlitamak 6,810 6,270 7,387 8,231 107 Production of high-quality butadiene- Republic of Petrochemical styrene rubbers of multi-profile Bashkortostan Plant products of low-tonnage chemistry, www.snhz.ru phenolic antioxidants "Agidol" (BHT) is the only enterprise in Russia to produce this product, as well as a high- octane fuel additive - MTBE.

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Foreign supply of equipment and components by chemical industry enterprises

Amount, Product group Consumer 2016, mln Equipment manufacturer EUR KURSKHIMVOLVOKNO 10.2 TRUTZSCHLER SWITZERLAND AG KAMENSKVOLOKNO OERLIKON BARMAG 1.4 EREMA ENGINEERING RECYCLING MASCHINEN UND ANLAGEN NEFIS COSMETICS 1.2 MAGIC, BVA SRL, OMMP S.A.S. VOLTYRE PROM DAVIS STANDARD LLC NATIONAL FEEDSCREW & MACHINING 0.8 NRM CORPORATION MOLD PLANT POLYMERBYT MOLDES RP INDUSTRIA DE MOLDES SU LDA Extruders, molds and PROCADIMOLDES FABRICACAO E COMERCIO DE their parts 1.0 MOLDES LDA IDEAL MOLDE LDA. AIPLAST EURO STAMPI SRL 0.7 FGL PRECISION WORKS INC. S.C.S. SOCIETA COSTRUZIONE STAMPI S.R.L. CORDIANT EMT PUCHOV S.R.O. 0.6 PNEUFORM HULIN A.S. HERBERT MASCHINENBAU GMBH & CO.KG KAZANORGSINTEZ THEYSOHN EXTRUSIONSTECHNIK 0.5 COPERION GMBH Compressors and their SHCHEKINOAZOT MITSUBISHI HEAVY INDUSTRIES COMPRESSOR parts 22.9 FIMA MASCHINENBAU GMBH ATLAS COPCO AIRPOWER N.V. KAZANORGSINTEZ 3.3 BURCKHARDT COMPRESSION AG KUIBYSHEVAZOT 1.2 ALSTOM Equipment for synthesis SHCHEKINOAZOT KIRCHNER ITALIA S.P.A. and reforming 13.2 HALDOR TOPSOE KRALOVOPOLSKA METAFRAX CASALE SA 11.5 JOHNSON MATTHEY FORMOX AB Furnaces ARNEST 1.6 MALL + HERLAN GMBH KAZANORGSINTEZ 1.3 SCHMIDT+CLEMENS GMBH+CO.KG Drilling equipment, APATIT JSC NORMET OY, VEEKMAS OY, HERMANN PAUS 1.1 underground self- MASCHINENFABRIK GMBH propelled machines NORTH-WESTERN 0.6 ATLAS COPCO ROCK DRILLS AB PHOSPHOROUS COMPANY Pumps and their parts SHCHEKINOAZOT EKOL, SPOL S R.O. HERMETIC-PUMPEN GMBH 6.9 KLAUS UNION GMBH & CO.KG KORTING HANNOVER AG PERONI POMPE SPA KAZANORGSINTEZ BURCKHARDT COMPRESSION AG 0.9 FRIATEC AG DIVISION RHEINHUETTE PUMPEN KLAUS UNION GMBH & CO.KG Components of aerosol ARNEST MAJESTY DISPENSING SYSTEM CO.,LTD cans 4.4 COSTER TECNOLOGIE SPECIALI SPA DESIGNED MOULDINGS

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Amount, Product group Consumer 2016, mln Equipment manufacturer EUR LINDAL Textile equipment SHCHELKOVO AGROKHIM PANTER P.T.M.T. SRL 2.2 TEKNOWAY KAMENSKVOLOKNO OERLIKON BARMAG 1.6 ROST GROUP & TECHNOLOGY CO.,LTD KUIBYSHEVAZOT 1.4 PICANOL NV EGIDA + FECKEN-KIRFEL GMBH & CO.KG MASCHINENFABRIK 0.3 ALBRECHT BAUMER GMBH & CO KG Heat exchangers SHCHEKINOAZOT BRONSWERK HEAT TRANSFER SPOL. S R.O. ONDREJOVICKA STROJIRNA A.S. 5.9 KRALOVOPOLSKA, A.S. DOOSAN ENGINEERING & CONSTRUCTION CO., LTD KAZANORGSINTEZ 0.9 ARVOS GMBH SCHMIDTSCHE DIVISION Filling and packaging KAZANORGSINTEZ 0.8 MASCHINENFABRIK MOELLERS GMBH equipment ARNEST R.A. JONES & CO 0.6 MALL + HERLAN GMBH OMSK PLANT OF TECHNICAL CARBON 0.4 CONCETTI S.P.A. NEFIS COSMETICS 0.3 OMAS TECNOSISTEMI PENOPLEX 0.3 MASCHINENFABRIK MOELLERS GMBH Cleaning systems and SHCHEKINOAZOT LINDE AG, BETA S.A., 3.5 separators KRALOVOPOLSKA, A.S. KAUSTIK JSC 1.0 ANDRITZ SEPARATION GMBH APATIT JSC 0.6 WELSER PROFILE GMBH Stop valves and their KAZANORGSINTEZ BURCKHARDT COMPRESSION AG parts 1.3 UHDE HIGH PRESSURE TECHNOLOGIES GMBH ARCA REGLER GMBH KUIBYSHEVAZOT 0.4 MAPOL S.R.O. Machining centers and ARNEST 1.9 MALL + HERLAN GMBH metalworking PENOPLEX 0.9 IWI GMBH equipment KAMENSKVOLOKNO CNC-TAKANG 0.4 JENG YUEH ENTERPRISE CO.LTD

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3. Investment in the Industry

In the period 2013-2016, Russian manufacturers of chemical products demonstrated positive investment dynamics in the development of machinery, equipment and vehicles, increasing the volume of financing by 60% (in rubles).

Investments in machinery, equipment and vehicles 2013 2014 2015 2016 Total chemical industry, mln RUB 78,206 77,754 101,718 124,777 Total chemical industry, mln EUR 1,847 1,522 1,496 1,686

2015, mln EUR 2016, mln EUR Chemical industry in total 1,496 1,686 Production of basic chemicals (fertilizers, polymers in primary 1,312 1,449 forms, rubbers) Manufacture of soap, cleaning and polishing agents, perfumery 97 122 and cosmetics Manufacture of other chemical products 64 60 Manufacture of paints and varnishes 16 29 Manufacture of artificial and synthetic fibers 4 20 Production of chemical plant protection products (pesticides) 4 5 and other agrochemical products

The Industrial Development Fund provides loans for the implementation of investment projects as part of the import substitution program, including for the chemical industry. In the period of 2015-2017 the fund invested at least 5 billion rubles.

2015, mln EUR 2016, mln EUR Chemical industry in total 1,040 743 Production of basic chemicals (fertilizers, polymers in primary 992 658 forms, rubbers) Manufacture of other chemical products 26 31 Manufacture of paints and varnishes 8 27 Manufacture of artificial and synthetic fibers 5 14 Manufacture of soap, cleaning and polishing agent, perfumery 8 12 and cosmetics Production of chemical plant protection products (pesticides) 1 2 and other agrochemical products

Within the framework of the “Strategy for the Development of the Chemical and Petrochemical Complex in the Period up to 2030,” the following action plans (including road maps) are currently being developed:

• On the development of the sub-sector of plastics processing for the period through 2025; • On the development of the sub-sector of the production of paint and varnish materials for the period through 2025; • On the development of the sub-sector of the production of artificial and synthetic fibers and threads for the period through 2020.

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4. Perspectives for the supply of goods and equipment from Switzerland

For the period of 2014-2016, a reduction in the direct import1 of equipment and materials by chemical industry enterprises was observed. The decrease in import volumes is due to several reasons, including the weakening of the ruble, the completion of a number of investment projects and the functioning of import substitution programs. Nevertheless, at the current time, Russian companies remain dependent on the supply of foreign equipment, materials and components.

Foreign technology needs in the chemical industry sector and the potential for import substitution

Share of Share of Russian manufacturers (producing or Russian foreign Types of production capable of mastering the production of production by production by competitive products) sub-groups sub-groups

Inorganic products (phosphoric acid thermal 100%), aerosil Import substitution will not be realized until (pyrogenic silica), sulfur dioxide 2020. There are no projects for these products. 0-10% 90-100% (sulfurous anhydride), calcium Potential producers may emerge.2 hypochlorite, disodium tetraborate (borax) Organochlorine products Volgograd Khimprom, Volgograd Region (tetrachlorethylene (production discontinued in 2014). There are no [perchlorethylene], 0-4% 96-100% projects, and import substitution will not be Epichlorohydrin, realized until 2020. Monochloroacetic acid Products of organic synthesis (propylene glycol, Khimprom Kemerovo, Kemerovo Region. paraformaldehyde (paraform), Uralchimplast, Nizhny Tagil, Sverdlovsk maleic anhydride, isophthalic acid, 0-5% 95-100% Region. toluene diisocyanates (tdi), For most products, there is no possibility of polyisocyanate (mdi), hladone import substitution until 2020. 134a (tetrafluoroethane) Synthetic dyes (organic pigments, Pigment (Krata Group), Tambov, Tambov 26% 74% optical brighteners) Region. Plastics and synthetic resins (epoxy resins, polyethylene-chlorinated, There are opportunities to organize production at a number of Russian plants3. But there are no superabsorbents based on acrylic 0-10% 90-100% projects, and import substitution is impossible polymers, polybutylene until 2020. terephthalate, polysulfones, ion resins) Chemical fibers and threads (poly- Tverskoy Polyefir, Tver Region; ethereal technical threads of high- 0-30% 70-100% Zavidovsky Textil, Tver Region. strength), polyester textile threads, It is planned to commission new capacities.

1 Import of equipment and materials directly to petroleum engineering enterprises. Part of the supply might be carried out through commercial operators and consequently would not be available for analysis. 2 Khimprom Volgograd, Volgograd Region (Production discontinued in 2014), Solikamsk Magnesium Plant, branch of the VSMPO-AVISMA Corporation, Berezniki, both – Perm Krai, Bui Chemical Plant, Kostroma Region 3Chimex Ltd., Saint Petersburg, Ya. M. Sverdlova State Owned Enterprise, Dzerzhinsk, Nizhny Novgorod region, Procter & Gamble - Novomoskovsk, Bella LLC, Yegoryevsk, Yunicharm Mel'nlike Rus, Venev, Kimberly-Clark, Stupino, LLC PO "Tokem," Kemerovo, Uralhimplast, Nizhny Tagil, Sverdlovsk Region.

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polyacrylonitrile fibers and Import replacement is not realizable until 2020. threads, viscose fibers

For long-term opportunities consider the possibility of supplying equipment and components for enterprises that will be established as part of new investment. In total, 47 operating and new investment projects in the chemical industry were identified worth an amount of about 490 billion rubles.

Most companies implement projects to develop and create new industries for import substitution. In particular, several projects are aimed at the creation of PET production in Russia: ✓ Zavod Chistykh Polimerov Etana (construction of the industrial complex Etana PET for the production of PET) ✓ SafPet (production of film, fiber and food PET and terephthalic acid) ✓ KPK Ivregionesintez (construction of a complex for PET textile production)

In addition, the chemical complex’s leading enterprises are investing in the modernization of equipment as part of their own strategic development plans: ✓ Bashkir Soda Company ✓ Phosforit ✓ Nevinnomysskiy Azot ✓ KuibyshevAzot ✓ Shchekinoazot, and others

Investment plans of companies in the chemical industry

Volume of funds Amount of allocated by the Implementation Project initiator Project essence financing, mln Industrial term RUB Development Fund,4 mln RUB SIBUR Construction of the ZapSibNeftekhim complex: Ends in 2019 360,000 construction of a pyrolysis unit with the capacity of 1.5 million tons of ethylene, about 500,000 tons of propylene and 100,000 tons of butane-butylene fraction per year, installations for the production of various grades of polyethylene and polypropylene with an aggregate capacity of 2 million tons per year. Expected date of completion of the project is 2019. As of January 2018, the status of the construction of the facility was 72.3% Zavod Chistykh Construction and commissioning of the ETANA Ends in 2020 22,000 Polimerov Etana PET industrial complex for the production of polyethylene terephthalate with a capacity of 1.5 million tons of products per year. Partners are the China Petroleum Technology and Development Corporation (CPTDC) and the China Kunlun Contracting and Engineering Corporation (CKCEC). The project is currently being implemented. SafPet Import-substituting production of film, fiber Ends in 2019 18,600 700 and food PET and terephthalic acid (NAR). The planned capacity of production of terephthalic acid is up to 210 thousand tons per year, PET food grade bottled – up to 250 thousand tons

4The Industrial Development Fund is a structure of the Ministry of Industry and Trade of the Russian Federation.

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Volume of funds Amount of allocated by the Implementation Project initiator Project essence financing, mln Industrial term RUB Development Fund,4 mln RUB per year or PET bottled – up to 200 thousand tons, PET fiber – up to 87.5 thousand tons, PET film – up to 25 thousand tons. The launch of terephthalic acid production is planned for the 4th quarter of 2018. The launch of PET production is planned for the 1st quarter of 2019. Ivregionsintez Construction of a complex for the production of 2018-2020 9,900 polyethylene terephthalate (PET) for textile purposes. Status as of January 2018: Vnesheconombank is in the process of updating the project in connection with the replacement of the key participant and the approval of UNIS, as general contractor and for a shift in the timing of the project. Novomoskovskaya Expansion of capacities of carbamide up to 1.5 2017-2019 5,432 500 Aktsionernaya thousand tons per day and release of a new Kompaniya Azot product – granulated carbamide with sulfur Zavod Po Proizvodstvu Construction of a plant for the production of 2016-2019 4,880 SMS, Republic of synthetic detergents. The factory is 70% built. Tatarstan [2] However, construction is suspended at the moment due to disruption of financing. Shchekinoazot Development, construction and operation of an 2015-2018 4,700 81 ammonia production plant by 2018. As of December 2017, the delivery of equipment under the project has been completed, and installation work is under way. Shchekinoazot Investment project “Installation of Methanol 2016-2022 n/a M-500” (within the framework of the strategic development program of the enterprise) Shchekinoazot Construction of a complex of nitric acid 2018-2021 n/a production with a capacity of 270,000 tons per year and an ammonium nitrate capacity of 340,000 tons per year (as part of the enterprise’s strategic development program) Bashkir Soda Company Modernization of column equipment for the 2016-2020 3,800 300 production of soda ash. By 2020, all of the column equipment, which consists of 62 units, will have been reconstructed. Phosphorit industrial Technical refurbishing for production to 2017-2019 3,100 500 increase the production of sulfuric acid, wet- group process phosphoric acid and mineral fertilizers (ammophos and diammonium phosphate) Cryogas-Tula, Tula Construction of air separation stations for the 2015-2018 2,500 27 production of liquid and gaseous oxygen, Region, Tula nitrogen and argon GMZ, Stavropol Territory Technical refurbishing of GMZ within the 2011-2025 2,400 109 framework of a project for increasing the processing depth of phosphorus raw materials Varnitsa, Kaliningrad Construction of a plant for the production of 2015-2018 2,269 13 Region high-quality salt from a saline solution Cryogaz-Kaliningrad, Construction of a complex for liquefying 2013-2018 2,216 72 Kaliningrad region, natural gas with an automobile gas filling Guryevsky compressor station (LNG capacity of 150 thousand tons per year) Nevinnomysskiy Azot Technical refurbishing of the AM-70 ammonia 2017-2018 2,056 500 production unit and increasing its productivity by 200 tons – up to 1,850 tons per day Nevinnomysskiy Azot Technical refurbishing of a carbamide unit 2017-2018 1,120 Nevinnomysskiy Azot Technical refurbishing of the complex’s 2017-2019 3,140 fertilizer plant to bring production capacity up

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Volume of funds Amount of allocated by the Implementation Project initiator Project essence financing, mln Industrial term RUB Development Fund,4 mln RUB to 600 thousand tons of finished products per year KuibyshevAzot Construction of a plant for the production of 2015-2018 1,740 2 ammonium sulphate nitrate. The project is currently being implemented. DME Aerosol, Tula Production of dimethyl ether of perfumery 2015-2018 1,416 Region, Shchyokinsky quality with a capacity of 20 thousand tons per District, Pervomaysky year (on the Shchekinoazot site) Bereznikovsky Sodovy Increase in production of grade B soda ash to 2017-2019 1,200 500 Zavod (BSZ) 600 thousand tons per year Omsky Kauchuk (GC Renewal of phenol and acetone production 2016-2018 1,100 300 Titan) capacities by environmentally acceptable technology. The capacity of the enterprise after modernization will be: phenol - 90 thousand tons per year, acetone - 55.8 thousand tons per year, and isopropyl benzene - 160 thousand tons per year. The project is currently being implemented. Omsky Kauchuk (GC Creation of isopropanol production with a 2018- n/a 1,000 Titan) capacity of 30 thousand tons per year. In January 2018, a loan was approved for the implementation of this project. Khimprom (calcium Creation of import-substituting production of 2016-2018 900 254 calcium hypochlorite with an active substance hypochlorite) content of at least 65%. The capacity of the new production will be 15 thousand tons per year. The project is currently being implemented. EFKO Cosmetic, 2015-2023 748 130.5 million rubles Reconstruction and modernization of soap were planned. Voronezh Region products manufacturing (There is no official confirmation yet.) Dagfos, Republic of Production of extraction of phosphoric acid, 2010-2018 739 qualified phosphates, simple and double Dagestan, Kizilyurt superphosphate LLC "Tatal" The production of additives that improve the 2016-2019 505 245 physical and mechanical properties of polyurethane foams used in the production of soft furniture stuffing, seats in transport and mattresses. The project is currently being implemented. Polycomplex Production of biodegradable drip irrigation 2015-2018 497 pipes Kompaniya HOMA Construction of new chemical-technological 2017-2020 460 150 lines for the production of polymer dispersions and glutinous materials TOKEM Creating the production of ion-exchange resin 2016-2018 400 200 for nuclear power plants and icebreaking fleets Volga-Industry, Creation of chemical plant protection products 2015-2018 330 5 Volgograd region, manufacturing. As of December 2017, within Volgograd the framework of this project, installation and commissioning work is being carried out in the plant’s new workshop. VMP Research & The final stage of construction of a plant for the 2016-2020 311 Production Holding, production of metal powders and varnish-and- Sverdlovsk region paint products Organic Park LLC, Expansion of microbiological pesticides’ and 2017-2018 292 85 Republic of Tatarstan, agrochemicals’ production by 3.5 times – up to Kazan 3.5 thousand tons per year Russkie Kraski Modernization of paint and varnish production, … 2020 200 and commissioning of new capacities by 2020

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Volume of funds Amount of allocated by the Implementation Project initiator Project essence financing, mln Industrial term RUB Development Fund,4 mln RUB LLC “Severo-Zapadnyye Production of surface-active substances 2016-2018 168 50 laboratorii i (surfactants) for manufacturers of household proizvodstvo” and industrial cleaning products. Within the framework of the project, it is planned to build a new plant in the Leningrad Region. PJSC Pigment (Krata), Expansion of production capacity for sulfamic 2017-n/a n/a acid; expansion of assortment of resins and Tambov Region industrial paint and varnish materials and capacities for their production NPP KF, OOO, the Organization of production of an anticorrosive 2017-2018 47 20 additive for hydraulic fluids (DMTD - 2,5- Volgograd area, Volzhsky dimercapto-1,3,4-thiazole) Kama Crystal Production of synthetic sapphire for 2014-2018/2019 4,954 optoelectronics (3 stages of construction), Technology including release of highly pure aluminum oxide (raw materials for the production of synthetic sapphire). The production of aluminum oxide has been started. The implementation of the third stage of construction is to begin in 2018. Industrial'nyy Park Modernization of the industrial complex for 2013-2025 1,135 (the 33 Kamskiye Polyany, processing polymers required amount Republic of Tatarstan, of co-financing Nizhnekamsk District, is 845 million Kamskie Polyany RUB) Gaznefteservis Oil and A new integrated investment project: 2017-2019 700 plan 6 “Construction of a plant for the production of 400 fact Gas, Volgograd Region technical gases (propane and butane).” As of January 2018, the readiness of the facility is 70% Monocrystal (Belgorod Expansion of production capacities for the 2015-2018 2,500 75 cultivation of synthetic sapphire for the Sapphire Factory) production of LEDs, smartphones, etc. Arnest, Production of cosmetic products for mass 2016-2018 800 53 Stavropol Region consumption in aerosol containers Boreskov Institute of Creating production of catalysts for the deep 2016-2022 Catalysis processing of petroleum raw materials based on aluminum oxide (hydrotreating catalysts and catalytic cracking catalysts) 18,000 LLC "TZK" Creation of titanium-magnesium catalysts for 2016-2020 the polymerization of olefins production n/a SKTB Katalizator Creation of industrial production of powdered 2017-2020 high-purity aluminum hydroxide and spherical catalyst carriers for the oil refining and petrochemical industries of the Russian Federation, with a production capacity of at least 1,000 tons per year 950 Sferamet, Moscow Production of spherical metal granules of a 2016-2019 497 217 wide range of nomenclature and composite Region, Snegiri materials (including for producers using Settlement, Istra District additive technologies) Monocrystal, Expansion of super-large synthetic sapphire 2016-2018 1,500 280 Stavropol Territory, crystals and polished plates production Stavropol

MARKET RESEARCH

5. Conclusions and Recommendations

The current import substitution initiative in Russia opens several business opportunities for Swiss suppliers of the relevant sectors. The main goal of the Russian authorities is to boost the local production. Due to high investment costs it is probably not the first option for Swiss SMEs to invest in a local production, especially if they have not been present in the Russian market so far and have no order commitment. But for suppliers there are also some interesting export options as presented in the report.

In order to be successful and win new business partners in the Russian market, the following competences are particularly important:

• Local presence either with a subsidiary, a representative office or through a reliable partner • Good functioning logistics, generally more important than in the West • Consulting support capabilities for projects in order to win tenders • Customer training • Well trained service staff

In general, personal contacts with potential clients and decision makers are likely to take much more time than in European countries. Detailed information material in Russian will also be necessary to convince your business partner.

The Swiss Business Hub Russia will be glad to consult and support you in all questions related to doing business in and with Russia.

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