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The Transformation of Russia’s Construction, Housing and Utilities Industry
6 June 2019
15:00—16:15
KEY CONCLUSIONS
Construction and utilities are among Russian economy’s key industries

About 6 million people are employed in construction industry alone, while utilities involve about 2 million people. We do understand that construction is a fund creating industry of our economy. Utilities is a serious field as well — Vladimir Yakushev, Minister of Construction, Housing, and Utilities of the Russian Federation.

New technologies completely change construction

Innovations have reached construction too. Five important technologies exist today. It is MRP [Material Requirements Planning, – Ed.], cloud technologies, sensor technologies, and 5G – that is being developed now – it is telecommunication. Combining these five technologies gives us a totally new idea of what the infrastructure should be like and what it would be like in the future that is pretty much here already — Erin Roberts, Partner, Global Leader of Engineering and Construction, EY.

Can we give a proper response to the revolution in equipment? I would say yes. Let me give you three examples. First of all, we would be able to build and design infrastructure. We can do it would any drawings. We have gone digital and we know what it means for the new technology. Secondly, we build nuclear power plants in the UK and are ready to help with BIM technologies [Building Information Modeling, – Ed.] to create construction models. Drawings are not needed anymore. And here is the third example. In the next two years, our BIM company’s turnover will grow from EUR 200 million to EUR 400 million — Christophe Castaing, Director of Digital Engineering, Egis.

It has been 7 years since our company started using BIM technologies, and we are absolutely consciously supporting the efforts the Ministry is investing in this project. Starting from 2016, the Ministry has been actively introducing BIM in all aspects of construction, and this is the future. Being involved in practical work, we support it. It is relevant for developers, for general contractors and just contractors, as well as for investors that can keep track of any construction project at all stages. If this technology is introduced in construction of social facilities, it would be a great help, and we will be able to complete the presidential programme aimed to build social facilities – kindergartens and schools — Gennadiy Shcherbina, General Director, Etalon Group of Companies.

Technology standards are a window of opportunities for Russia. We can use existing standards, because nobody has the time or possibility to reinvent the wheel. Russia can use it, make a huge step forward and enter the global community — David Bain, Vice President of Standards, Telecommunications Industry Association.

ISSUES
Utilities need bigger investments

Underfinancing utilities is our pain, but our tasks remain unchanged. We need to learn how to attract investment in the utilities segment — Vladimir Yakushev, Minister of Construction, Housing, and Utilities of the Russian Federation.

Huge technological and economic problems have piled up over the decades, and it is mostly caused by underfinancing. There are different estimates, but 2–2.5 trillion roubles are about right. This underinvestment resulted in the fact that our utilities are extremely worn out. The losses reach 20–30% or even more, and it is the consumer who pays for them. Energy efficiency remains extremely low — Vladimir Rashevsky, Chief Executive Officer, Chairman of the Management Board, JSC SUEK.

There are no conditions that would stimulate the professional community to be part of this process [investing, – Ed.] — Anton Glushkov, President, Nostroy.

Norms and regulations call for improvement

There are lots of limitations that should be cancelled. There is a problem of excessive regulation; there is a problem of awry prices: public procurement prices are extremely low, and companies have to lie and forger and face criminal charges. It is super high interest rates, and the unresolved problem of road and highway infrastructure, etc. — Valery Fadeev, General Director, Expert Media Holding; Editor-in-Chief, Expert magazine.

There is a gap between requirements set by the customer when they prepare the formal offer – the quotation and the tender paperwork – and by what it has to include as design and estimate requirements. We do not have any approved detailed requirements to procuments, standard contracts, or requirements the customer must set in the design and estimate documentation — Anna Katamadze, Deputy Head, Federal Treasury.

SOLUTIONS
Stimulating investment in utilities

This segment has a fantastic investment potential. Today, it is 2.5% of the GDP and the earnings are 1.5 trillion roubles. This segment can take endless investment, because there is a need for it and because it creates an enormous multiplicative effect, and it does not require anything to be imported — Vladimir Rashevsky, Chief Executive Officer, Chairman of the Management Board, JSC SUEK.

Russia took a great step, when it opened up its energy market, which was a tremendous success. I believe we need to do something of this kind in heat supply. It will attract investment in this segment. In addition to financial incentives, investors need long-term transparency and clarity, i.e. clear market rules. Investors do not invest, if the market does not have any rules — Arto Räty, Senior Vice President, Corporate Affairs and Communications, Fortum Corporation..

Improving norms

Deputy Prime Minister Vitaly Mutko instructed us to develop a strategy for construction industry up till 2030, and this is what we have been doing. Deputy Prime Minister has set the following objective: we need to come up with a set of documents discussed at as many platforms as possible, with maximum involvement of the expert community, so that it does not put us to shame later. It cannot be a distortion, or just another report on another strategy completed — Vladimir Yakushev, Minister of Construction, Housing, and Utilities of the Russian Federation.

There are certain conditions for the process to develop. First of all, the government understood the problem, so it actively worked to create the norms. In 2010, the uniform law on heat supply was passed — Vladimir Rashevsky, Chief Executive Officer, Chairman of the Management Board, JSC SUEK.

Regional government should be proactive

Government agencies have enormous authority and opportunities to resolve the problem. Let’s address the utilities. Managing companies are a relevant problem. We should not have compromised here, because the first thing we had to face was cleaining stairwells and yards, etc. The first response we got from everyone was “it is not our responsibility, and we cannot do about it,” Over the first two weeks, the mobilization regime showcased that everything was possible. If you honestly explain the rules of the game and set rigid boundaries, things work and anything can be done — Andrey Chibis, Acting Governor of Murmansk Region.

First of all, we create development plans for all municipalities that involve all national projects’ facilities: infrastructure, utilities, etc. We include investment programmes and organizations with resources in the same plan. We also include all our plans that require support from the regional budget. Why do we need it? To help any construction investor or citizen see when, what year and where we will have roads, light, gas, or wastewater disposal and plan their investments accordingly. As for construction. We have initiated two regional laws: one was already passed; the other one is being reviewed. The first one stipulates that we give 0.20–1 hectare to locals of Kurgan Region for free in case they either have a child or construct any residential building on the allocated land plot. The second one stipulates that we provide two types of wood at a discounted rate: it can be either stumpage under federal or appropriate regional laws, or a prefabricated house at a discounted rate as well, so that after getting the land for free people could get a house fast and cheaper — Vadim Shumkov, Acting Governor of the Kurgan Region .

The material was prepared by the Russian news agency TASS