Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
The Russian government and state-owned-enterprises (SOEs) play an outsized role in the economy, with the Russian government controlling the oil and gas sector and maintaining major equity stakes in enterprises in a range of other natural resource, manufacturing and technology industries. Although sales to government agencies and state-owned enterprises are possible and sometimes generate significant, ongoing business, U.S. government sanctions ensuing from Russia’s actions in Ukraine mean that U.S. companies should carefully assess whether a prospective customer might fall afoul of these sanctions before conducting any sales to the Russian government or state-controlled entities.
In Russia, procurement programs, called “tenders,” are defined as competitive bidding, during which suppliers of goods and services are selected. If the company chooses to sell to both state and municipal customers then their actions are governed by Federal Law 44 ”On the contract system in the procurement of goods, works, services to meet state and municipal needs.” If the customer is an SOE, a natural monopoly, or an organization whose activity is regulated, then tenders must comply with the Federal Law 223-FZ “On the procurement of goods, works, services by certain types of legal entities.”
Private companies also conduct tenders. There are some specifics to these tenders as well, but below we will discuss only selling to the first two categories.
The tendering process can be described as follows:
- Market analysis
- Selection and receipt of an “electronic signature”
The electronic signature completely replaces handwritten signatures and is legally binding. It is created using cryptographic encryption, and valid for one year. All government tenders are conducted electronically, so to participate, the company (LLC, or JSC) has to obtain an “electronic signature”. Foreign companies or individuals are not permitted to obtain an electronic signature, so they have to rely on their Russian partners, who receive it through www.gosuslugi.ru. This process can take some time, because the government tenders require an enhanced qualified electronic signature.
- Registration on electronic platforms
All government tenders are conducted on the Unified Information System in the Field of Procurement. All the bidders must register on this site. SMEs specifically can use eight federal electronic platforms, the operators of which take payments from the winners. It is enough to register on the Unified Information System on the Field of Procurement and the companies can participate on these eight federal electronic platforms.
- Search for tenders
- Opening a special account at the bank
- Preparation and submission of an application for participation
- Participation in the tender which happens in “real-time” on the electronic platform.
- Results of the tender
U.S. companies bidding on government tenders may also qualify for U.S. government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center, coordinates U.S. government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and interagency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. embassy or other U.S. Government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy for Foreign Government Contracts for additional information.”
Russia is still not a party to the WTO Agreement on Government Procurement,. It has been in entrance negotiations since 2013.
Financing of Projects
Most U.S. government international financing programs to support U.S. exports have halted consideration of transactions in Russia in response to Russia’s intervention in eastern Ukraine and purported annexation of Crimea. This includes both the U.S. Export-Import Bank (EXIM) and the U.S. International Development Finance Corporation (DFC, formerly OPIC). Prior to these suspensions, assistance had come in the form of working capital loans, loan guarantees, insurance, lease financing, grants for major projects, and in some cases, financing for the foreign buyers of U.S. manufactured products. Other sources of international trade and project financing in Russia include regional development banks, usually tied to large infrastructure or other developmental projects.
The Small Business Administration (SBA) offers financing packages specifically targeted to assist small and medium-sized U.S. exporters expand overseas and fund export transaction costs or financing for the export of goods or services. SBA programs can provide the liquidity needed to accept new orders, enter new markets and compete more effectively in the international marketplace. Some of their programs include: Export Express Loan Program, Export Working Capital, International Trade Loans, and the SBA and EX-IM Bank Co-Guarantee program. For more information, please go to the SBA website.
In July 2014, the European Bank for Reconstruction and Development (EBRD) froze all decisions regarding new projects in Russia. However, the EBRD continues to support its existing projects and clients in Russia.
The U.S. Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the European Bank for Reconstruction and Development and the World Bank. These institutions lend billions of dollars in developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The Commercial Liaison Offices help American businesses learn how to get involved in bank-funded projects, and advocate on behalf of American bidders. Learn more by contacting the Advocacy Liaison for African Development Bank or Advocacy Liaison for European Bank for Reconstruction and Development.