Russia: Support of local production within the procurement by Russian state-owned companies

The below described provisions of Russian law entering into force on 1 January 2017 confirm the continued tendency of Russian Government to promote local production (including products made in Russia and in other lands of the Eurasian Union (Belarus, Kazakhstan, Armenia and Kirgizstan) and import substitution in all sectors in Russia. Bearing this in mind, many investors now have even more reasons to think about localising production.

Important changes with regard to procurement procedures of Russian state-owned companies

Up to now the Russian state-owned enterprises have largely been able to structure the procurement rules themselves, especially in relation to the choice of foreign goods, works and services (hereinafter the “Foreign Products”). Nevertheless, in the past many state-owned companies have voluntarily adopted the restrictions for procurement of Foreign Products which were obligatory for procurement for government and municipal needs.

According to Government Decree No. 925 of 16 September 2016 “On the Priority of Russian Goods, Work and Services over Foreign Goods, Work and Services in Procurement by Certain Types of Legal Entities”, which came into force on 1 January 2017, the following new provisions for procurement by state-owned companies were introduced:

The state-owned companies must provide certain benefits for the goods, works and services which originate from Russia or other members of the Eurasian Union (hereinafter “Local Products”) (please see below for further details).

The priority awarded during procurement processes by state-owned companies covers all goods, work and services, whereas the restrictions for foreign goods applicable up to now when contracts were awarded by the state or municipalities only covered certain goods from the fields of food, medicine, machines and plants, electrical goods, software and other fields).

The following benefits must be granted to the Local Products against the Foreign Products which are offered for the procurement:

• If the lower price has to be opted for, offers of the Local Products will be assessed with the 15% discount, although the goods will be purchased at the price actually offered, i.e. without a discount; 
• If the winner of the contract is determined as a result of reducing the price by a certain “step” and the winner offers the Foreign Products, then the goods will be purchased at the price offered but with a 15% discount;
• If the subject of the tender is the right to enter into a contract (i.e. the winner has to offer the maximum price for the right to enter into a contract) where the price of the contract has been reduced to zero and the winner offers the Foreign Products, the contract with such a winner will be entered into at the price offered by it for the right to enter into a contract increased by 15%.

Further strengthening of the localisation requirements for qualification of the vehicles as “Made in Russia”

Apart from this the localisation requirements for the qualification of the motor vehicles as “made in Russia” have been made even tougher. Up to now it was sufficient just to carry out a certain number of manufacturing processes in Russia or other countries in the Eurasian Union. Under Government Decree No. 513 of 9 June 2016, starting from 1 January 2017 certain motor vehicles will be recognised as “made in Russia” for the purpose of participating in state and municipal procurement tenders only if the complete manufacturing was carried out in Russia or other countries in the Eurasian Union.