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Eurasia Industrial Cooperative

April 27, 2024
The 4th Industrial Trade Fair, 'INNOPROM: Central Asia', recently concluded in Tashkent, focusing on the establishment of interstate and interregional industrial cooperation. Delegates from EAEU member countries actively engaged in discussions during a plenary session that highlighted the initial outcomes of a pilot mechanism for financial assistance aimed at promoting industrial collaboration.
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The session primarily centered on new tools for industrial cooperation among EAEU member countries. Gohar Barseghyan, a Member of the Board (Minister) for Industry and the Agro-Industrial Complex of the Eurasian Economic Commission, opened the discussion by outlining key points on the EAEU integration agenda. She emphasized the importance of supporting the production of modern industrial products to enhance the technological development of industrial complexes and to improve the competitiveness of national economies within the Union.

The industrial sector remains a vital driver of economic growth in the EAEU. In 2023, industrial production increased by 3.7% compared to the previous year, while the manufacturing sector grew by an impressive 7.4%. This growth was observed across all member states. Since the formation of the Eurasian Economic Union in 2015, mutual supplies among EAEU countries have surged by 2.3 times.

Barseghyan also highlighted a new regulatory document that outlines significant “points of growth” for the industry: the December 2023 declaration titled 'Eurasian Economic Way,' which aims to foster the development of cooperation mechanisms and promote joint production within the territories of the member states.

Another important document, 'Main Directions of Industrial Cooperation Until 2030,' is currently being drafted. This document will consolidate the initiatives of Union members and outline the paths for industrial cooperation while ensuring continuity in areas that have proven effective.

Barseghyan specifically mentioned the launch of a new supranational program to financially support cooperation projects. This program represents the first financial initiative in which the Commission has been granted supranational powers to finance industrial projects.

The main objectives of this program include creating cooperative production chains, modernizing existing ones, boosting exports, and enhancing mutual trade and investment. To qualify for the program, participation from at least three member states is required, involving the supply of materials and components, engineering and construction services, and a property contribution of at least 10%.

This year, approximately 1.8 billion rubles has been allocated to initiate the program, which is expected to subsidize projects worth up to 15 billion rubles. Plans for 2025 anticipate an increase in funding to about 3.6 billion rubles. Under the program, the Union budget will subsidize the interest rate on loans, equating to 100% of the key rate set by the Central Bank of the respective member state.

According to Barseghyan, there are already promising pre-project proposals, particularly from Uzbekistan's industrial sectors such as machine building, aircraft manufacturing, chemicals, and pharmaceuticals.

The next speaker, Viktor Yevtukhov, a member of the Federal Assembly, stressed the significance of the new supranational mechanism that requires participation from at least three countries, as most project financing currently originates from Russia. Yevtukhov underscored the importance of platformization in various sectors, the establishment of industrial centers, and the process of digital transformation, noting that Russian corporations like Rosatom and RUSAL are already making strides in Uzbekistan.

Country Reinsurance of Contractors

EXIAR CEO Nikita Gusakov addressed the audience next, highlighting that the EAEU and nearby markets are priorities for Russian manufacturers of high-tech goods. He noted, "In the face of sanctions, redirecting sales from unfriendly markets is a crucial element of the strategy for Russian exporters. Utilizing REC support tools is essential for companies," Gusakov emphasized.

He presented data from REC's activities in Uzbekistan, revealing that in 2023, the REC facilitated Russian exports to the country totaling $1.37 billion. This included products from various sectors such as agro-industry, light industry, timber, machine building, metallurgy, pharmaceuticals, cosmetics, chemicals, and other industries, along with exports of Russian high-tech services. Furthermore, REC’s expanded mandate supported critical imports amounting to $13.4 million.

Gusakov highlighted that Russian companies seeking industrial cooperation with partners in the EAEU and neighboring countries are actively leveraging REC support tools to mitigate investment risks. There is a significant demand for insurance against political risks for equity investments abroad. He noted that this approach aligns with the principles of industrial cooperation, especially when working with local partners. The agency is currently processing applications from Russian companies seeking insurance for investments in Uzbekistan, Qazaqstan, and Armenia.

Additionally, REC provides insurance for payment risks associated with foreign counterparties, facilitating the acquisition of favorable financing options for export projects through its subsidiary, Roseximbank. This ensures that REC's foreign partners benefit from favorable settlement terms and extended payment options.

As a testament to successful projects, Gusakov mentioned insurance coverage provided for an export contract involving the design and construction of a copper processing plant in Almalyk, Uzbekistan. This project is among the largest mining ventures globally, and the contractual obligations represent one of the largest undertakings by Russian producers.

Gusakov also highlighted the insurance coverage and deferred payment provisions for equipment supplies essential for constructing the plant, which exceeded 25 billion rubles. The project's total budget amounts to $2 billion.

EXIAR's insurance coverage was utilized to finance export factoring for the modernization of Uzbekistan's gas transportation system and the construction of a gas processing plant. Thanks to REC's support, 190,000 tons of pipe products were delivered for the construction of 511 kilometers of the main gas pipeline. Gusakov emphasized that this project is vital for improving gasification in various regions of Uzbekistan and minimizing gas leaks during transport.

Other industrial projects involving EXIAR include several large pre-export credits and factoring financing with insurance coverage, such as the modernization of a refinery in Uzbekistan and export contracts for pumps used in oil production. These pumps are not only exported to Uzbekistan but also redistributed to other countries for operation at over 100 wells in various oil-producing regions globally.

To support the rail transport of oil and petroleum products in Uzbekistan, a loan agreement was established with a leasing company under EXIAR's insurance coverage. This agreement finances the purchase and delivery of five shunting diesel locomotives.

For the first time, a factoring financing transaction utilizing Roseximbank's services under EXIAR's insurance coverage was executed as part of the Aral Sea shelf development project. Preliminary seismic explorations indicate that Uzbekistan's hydrocarbon resource base will see significant enhancement.

Gusakov also listed additional financed projects in EAEU member countries, including the purchase of Russian-made rails for the repair of 50 kilometers of Belarusian railway in 2022. Between 2020 and 2021, REC and EDB collaborated to support investment projects for the construction of five solar power plants in Qazaqstan, with a total capacity exceeding 200 MW.

Oleg Melnikov, Executive Vice President and Head of the Contracts Banking Department of Gazprombank, highlighted that GP is an authorized bank of the EAEU, focusing on developing financing and banking support instruments for projects, including those in the SME segment. Melnikov proposed incorporating into EAEU legislation the necessity for bank support through authorized and partner banks to effectively implement cooperation projects within the Union.

Kirill Kolomiitsev, Deputy Director General of the SME Corporation, echoed this sentiment, advocating for the interests of SMEs to be considered during the process of Eurasian economic integration. He suggested allocating funds to support relevant entrepreneurs from small and medium-sized enterprises. According to Kolomiitsev, the advancement of digital tools, particularly financial ones, significantly influences industrial cooperation with Russian companies in EAEU member states.

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