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AEB Business Quarterly 07.2009

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page 26. TRENDS & TALENT IN INDUSTRY MANUFACTURING
IN CEE COUNTRIES, GREECE AND TURKEY
AFTER THE GLOBAL FINANCIAL CRISIS

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AEB Business Quarterly 07.2009

  1. 1. AEB Business Quarterly Summer 2009 A s s o c i a t i o n o f E u r o p e a n B u s i n e s s e s Quality Information • Effective Lobbying • Valuable Networking MOVING FORWARD: New Technologies and Frontiers An Overview of Russia’s Machine Building & Engineering Sector: The Crisis Management Toolkit • Project Management in Russia A Survey of the Labour Market • AEB Member News
  2. 2. CEO LETTER 1 Dear Readers, Welcome to the Summer 2009 edition of the AEB Business Quarterly. Technology as a whole enables a society use the knowledge of equip- ment and technique to adapt to and control its environment in an effort to ensure continued survival. Engineering being a very broad discipline, ranging from collaborations to small individual projects, is broken down into several different areas, which include civil, electrical, mechanical and chemical engi- neering. With the rapid advancement of technology as a whole, many new fields such as computer engineering, mechatronics and nanotechnology are becoming increasingly important within the society. In this edition of the AEB Business Quarterly magazine, we shall attempt to take a look at Rus- sia’s Machine Building and Engineering industry – its achievements, trends and directions likely to be taken by future developments, bearing in mind that by its nature, technology evolves hand in hand with the society in question; therefore, is likely to differ from country to country with respect to the direction taken on by its advancements. This summer’s edition shall focus on hot top- ics such as Supply Chain Management; Crisis Management and the Latest Innovations within Russia’s Machine Building and Engineering industry. Also, the Summer 2009 edition of the AEB Business Quaterly shall provide you with details of the AEB’s participation in the EU-Russia Industrialists' Round Table (IRT) as well as a detailed update on the hugely successful AEB Anti-Crisis Forum. In May 2009, the Association of European Businesses was invited by the IRT European Co-Chair, Mr. Andersen, to become an observer member of the IRT. Subsequently, the AEB supported the first IRT Round Table – EU-Russia cooperation: protect invest- ments, avoid protectionism, at the St. Petersburg International Economic Forum on the 4th of June, 2009. Likewise, this issue features updates on the briefings by HE Tomas Bertelman, Ambassador of Sweden to the Russian Federation, Igor Shegolev, RF Minister of Telecom & Mass Communications and Thierry de Montbrial, President of the French Institute of International Relations (IFRI) and member of the Institut de France; updates on the HR Annual conference, which enjoyed great reviews, as well as updates on the two AEB Regional Investment Forums. Permit me to take this opportunity to welcome all our new members and assure each and everyone that even in the face of the ongoing crisis, the AEB shall continue the quality lobbying that its members have grown accustomed to, in an effort to ensure a thriving business community where foreign and Rus- sian businesses exist together in a mutually beneficial relationship. On a final note, I would like to wish you all the best in the months ahead. Yours sincerely, Dr. Frank Schauff Chief Executive Officer The Association of European Businesses AEB SPONSORS 2009 Austrian Energy & Environment, Russia • Bank Credit Suisse • Bank WestLB Vostok • BMW Russland Trading • BP • CMS International • Deloitte • DHL International (Russia) Ltd • E.ON Russia OOO • EMAlliance • Enel Russia • Eni S.p.A. • ERGO Insurance Group • Ernst & Young (CIS) BV • Ford Motor Company ZAO • Fortis Life Insurance • GDF SUEZ • ING Wholesale Banking • Investment Company IC Russ-Invest • ITE LLC Moscow • IN2 Matrix • John Deere • KPMG • Mercedes-Benz Russia • MOL Plc • Novartis Pharma • OBI Russia • Peugeot Citroen Rus • PricewaterhouseCoopers • Procter & Gamble • Raiffeisenbank Austria ZAO • Sanofi Aventis Russia • Servier Pharmaceuticals • Shell Exploration & Production Services • Sheremetyevo International Airport • StatoilHydro ASA • SWIFT Scrl • Telenor • Total E&P Russie • Volkswagen Group Rus AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 1 15.07.2009 16:07:33
  3. 3. 2 CONTENTS AEB BUSINESS QUARTERLY, Spring 2009 CEO Letter Introductory words from Dr. Frank Schauff, Chief Executive Officer of the Association of European Businesses in the RF 1 An Overview of Russia's Machine Building & Engineering Sector AEB Networking, pg. 24 INTRODUCTION: AEB's Machine Building & Engineering Committee – The story so far… Peter Kraemer, Vice-president, EMAlliance; Chairman, AEB Machine Building & Engineering Committee 4 Remote Possibilities for the Engineering Property of www.dreamstime.com Supply Chain Dan McGrath, Communications Manager, DHL Express 5 The Crisis Management Toolkit Harald Schedl, Partner and Shareholder and Dr. Dmitry Sharovatov, Consultant, Simon-Kucher & Partners 7 Waste Utilization Technologies, pg. 9 An Interview with Adam Gonopolsky, Holder of Chair “Techniques & Waste Utilization Technologies” MUET;Deputy General Director, SUE «EKOTECHPROM» Interview by Nina Anigbogu, Publications Manager, AEB 9 Crisis Management – Structuring Chaos In The Business Environment Of Energy Companies Mirja Mutikainen, M.Sc (Tech.), MBA, Director, Poyry Energy Consulting (Helsinki) 12 Professionals Ride Out the Crisis Irina Kurganova, Senior Key Account Manager, Manpower 15 AEB Updates, pg. 22 Project Management In Russia – An Interview With Tebodin's Top Management Tarkhanova Varia, Business Development Manager, Tebodin Eastern Europe B.V., talks with Mr. Barendregt, Head of engineering department and Mr. Senichev, Head of project management department about Project Management in Russia 17 Property of www.dreamstime.com Russia's Railway Transport Patrick PASCAL, Country President, ALSTOM Russia 19 Latest Trends In Russia's Machine Building And Engineering Sector Updates from DuPont's Top Management 20 Latest Trends In Russia's Machine Building And Engineering Sector, pg. 20 AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 2 15.07.2009 16:07:36
  4. 4. CONTENTS 3 Association of European Businesses in the Russian Federation Executive Board Carty, Tim Cohen, Philippe (Deputy Chairman) Faidy, Eric Hartmann, Reiner (Chairman) Helin, Erik Munnings, Roger (Deputy Chairman) Novoselov, Dmitry Sakuler, Gerald (Deputy Chairman) Ziegler, Christian Council of National Representatives Property of DHL Austria – Wolfgang Leitner Belgium – Johan Verbeeck Remote Possibilities for the Engineering Supply Chain, pg. 5 Cyprus – Don Scott (Chairman) Czech Republic – Alexey Abramov Trends & Talent in Industry Manufacturing in CEE Countries, Denmark – Aage V. Nielsen (Deputy Greece and Turkey after the global financial crisis Chairman) By Nikita Kazakov, Senior Consultant, Business Training Russia 26 Finland – Timo Mikkonen France – Philippe Delpal «Innovations – A Mandatory Condition Of Successful Business Germany – Gianni Van Daalen (1st Deputy Development In The Power Machine-Building Industry” – Chairman) Thinks Ivan Shevchenko, First Vice-President, Emalliance Hungary – Laszlo Pocsajl Alexander Rabotnov, Advisor to the Vice President, EMAlliance 32 Ireland – Gerald Rohan Lithuania – Natalia Bucelnikova On the Social Scene Switzerland – Fred Jaumann Networking 24 The Netherlands – Maarten Pronk AEB CEO AEB Updates Dr. Frank Schauff AEB participation in the EU-Russia Publications Manager Industrialists' Round Table (IRT) Nina Anigbogu Marie Rondelez, Events Director, AEB 22 Advertising & Sales AEB Open Event: The Anti-Crisis Forum Olga Pavlyuk Nina Anigbogu, Publications Manager, AEB 23 Ul. Krasnoproletarskaya 16, bld. 3 127473 Moscow, Russian Federation AEB Committee Updates 29 Tel.: +7 (495) 234 27 64 Fax: +7 (495) 234 28 07 AEB Member News Website: www.aebrus.ru The AEB Business Quarterly is registered Member News 34 with Rosohrancultura, ПИ No. ФС77-24457 Circulation: 16, 000 copies. All copyrighted Appointments 37 images are taken from www.dreamstime.com. The opinions and comments expressed here are New Members those of the authors and do not necessarily reflect those of the Association of European Businesses. New Members 38 AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 3 15.07.2009 16:07:37
  5. 5. 4 INTRODUCTION INTRODUCTION: AEB'S MACHINE BUILDING & ENGINEERING COMMITTEE – THE STORY SO FAR… Peter Kraemer, Vice-president, EMAlliance; Chairman, AEB Machine Building & Engineering Committee of the Russian Federation is currently ural Resources and Environment of the planning to make changes to the envi- RF, representatives of the Committee ronmental law. The main idea of the of the State Duma of the RF for mineral draft bill is to improve the legal grounds resources, use of natural resources and of the state’s environment regulation environment, as well as representatives and to ensure environmental safety of various companies. based on the balance of environmental and economic interests of the society, Creating conditions for the as well as see to the legal support of the utilization of waste, taking into citizens’ constitutional right to a safe account the European experience environment, within the norms of the and high European environmental Environmental Code of the Russian standards Federation. All over the world, the industrial and Peter Kraemer, Vice-president of EMAlliance The main goal of the RF Environ- domestic waste utilization problem mental Code elaboration is to codify is becoming more critical. The main I n 2008, pursuant to the initiative legislative and other legal acts that advantage of waste incineration is the of Austrian Energy & Environment, regulate environmental relations; to fact that the volume of waste buried is Siemens and PJSC EMAlliance, the transfer from legal regulation by object 10 times less. AEB Machine Building & Engineer- to the integrated legal regulation of In EU countries, the waste utilization ing Committee was founded; thus, environmental relations; to fill the gaps; problem is solved with the help of incin- leading to the creation of a forum that to ensure an approved development eration plants regarded as clean compa- enables AEB members contribute to and application of the RF environment nies that meet the highest environmental the development of Russia’s state policy law, mineral resources law, legislative standards and are located in town. Apart in the energy and machine-building and civil, administrative and other laws, from the direct goal – to utilize wastes, industries. One of the most important making sure that these are in compli- the companies, regarded as perfect ones goals of the Committee is to set up ance with the norms of internation- from the point of view of architecture, clear and transparent rules that shall al environment laws; to found new generate both heat and power to meet stimulate the development of the Rus- legal institutions that meet up-to-date the needs of the town. sian market and provide equal access to requirements of the society’s economic In the beginning of 2009, the Com- market players. The Committee mem- development and to apply direct action mittee arranged a round table discussion bers intend to initiate the introduction acts to the fullest extent. dedicated to the above mentioned issue, of changes to Russia's environmental In order to increase the perfor- “Incineration? Landfill? Or to be Buried law, taking into account strict environ- mance efficiency of the new environ- under Waste? Ecological Technologies mental requirements and interests of mental code of the RF, the Committee in Domestic and Industrial Waste Utili- future customers. This should result in plans to arrange an event that will zation in Moscow” More information on . increasing the effectiveness and effi- involve members of the Government, this event may be found in this issue of ciency rate of power plants, as well as representatives of the Ministry of Nat- the AEB Business Quarterly magazine. in new technology applications. The Committee invites all interested During the work process, the Com- members of the AEB to take an active mittee members discuss up-to-date prob- part in the Committee's work processes. lems related to the development of the In early September 2009, the committee machine-building market in Russia and plans to organize a meeting, where par- share information and international expe- ticipants shall brain-storm on the lat- rience in the machine-building industry. est machine building market trends in The Committee members defined Russia, taking an in-depth look into the the following most important issues for emerging developments, whilst making review in 2009: all the necessary arrangements for the Property of EMAlliance upcoming Round Table on Machine Environmental Code of the RF Building development perspectives, It should be noted that the Ministry of which shall take into account the new Natural Resources and Environment Russian WTO policy . AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 4 15.07.2009 16:07:38
  6. 6. AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR 5 REMOTE POSSIBILITIES FOR THE ENGINEERING SUPPLY CHAIN Dan McGrath, Communications Manager, DHL Express For the transport industry, as a tra- shift. And, surprisingly, despite the fact ditional bellwether for the economy in that new trends in the engineering and general, this has put tremendous pres- manufacturing sector are likely to reflect sure on just about everyone. Growth the lower volumes in logistics and sup- has slowed dramatically, overall ship- ply chain, companies offering transpor- ment levels on many routes are drop- tation services could see themselves gain ping, and smaller players with a weak a much higher placing on management cash position are hurting. Ignoring the agendas for the foreseeable future. This outlook for fuel costs, which would will be particularly noticeable where merit a separate article (and perhaps a customers are located in Russia’s remot- magic crystal ball that can predict the est areas. No-one reading this article will future), it’s safe to say that most players, be surprised by the news that Russia is if they haven’t started already, are going a very big country and the producers to be forced to adapt to a very new of natural resources are usually found A financial crisis is a wonderful event environment in the near future. in the deepest darkest corners of its But there is a silver lining to this territory. Any minor deficiencies in a for the transportation and logistics very dark cloud of doom: just a year ago, company’s supply chain are likely to industry. An economic slowdown before the world economy got a very be multiplied tenfold where the near- which makes its presence felt in sudden reality check, supply chain man- est international entry point is 3000 km Russia is great for the country’s supply agement and logistics was something of away or where access is restricted by the chain. A decline in demand among an afterthought for many companies in river navigation schedule for around 7 engineering and manufacturing the engineering and manufacturing sec- months per year. customers in remote Russian regions? tor in Russia. Transportation was seen as Fantastic! a necessary channel for getting growing So why will logistics suddenly volumes of equipment and parts into get its day in the spotlight? O K, it’s true that the controversial the hands of the customer as quickly as Well, the first reason is that companies, statements above need to be tem- costs would allow, while supply chain particularly Western suppliers of industri- pered with a very healthy dose of management involved improving the al equipment, and the after-sales market realism. Many companies are suf- visibility of the order-delivery process. that supports them, are now seeing a great fering as a result of financing bottlenecks, But, with a few exceptions, they were opportunity to improve their cash flow by drops in demand, inability to service debt not always seen as a strategic compo- drastically reducing the excess inventory obligations and other difficulties. Capital nent of the business. The Supply Chain that sits throughout their network. The expenditure programs have been slashed, Manager of a leading engineering com- key challenge facing any service company workforces reduced and credit terms pany servicing the oil and gas industry today is that of weighing up the lead time have tightened, putting the squeeze on noted that the recent past was all about resources. The forecast of a decline in service, about getting parts in to feed 2009 GDP of 4-8% by the Minister of the demand driven by booming produc- Economic Development and Trade in a tion. At that time, companies could live May interview with Bloomberg under- with excess working capital at multiple scores the challenges that lie ahead. Oil sites dotted throughout the country if it has returned to 60 USD per barrel, but meant that they could comfortably build most of the oil majors have already sub- customer loyalty through exceptional mitted conservative budgets based on service. The decision-making on orders much lower prices, and investment is was often made by sales managers or unlikely to be resumed with much enthu- engineers, with transportation expense siasm until prices stabilize at a high level. regarded as “peanuts” secondary to the , With the exception of gold and one or bags of cash on offer in the contract. two other commodities, the majority of Today, in an environment where cost Property of DHL natural resources which help make up control and cash generation are now the staple of Russia’s economy, are in a seen as priorities for this capital inten- similar predicament. sive industry, the focus has begun to AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 5 15.07.2009 16:07:38
  7. 7. 6 AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR for essential inventory (with some parts inventory on site. Some companies may play an increasingly important role, with taking from 6 to 12 months to produce see advantages in freeing up inventory in geographical coverage becoming ever and deliver) against their need for cash. exchange for quicker modes of transport. more critical. They will have to maintain Having millions of dollars of working Customs clearance will become even competitive prices while ensuring the capital sat in a workshop in Noyabrsk more critical to a company’s competitive quality and reliability that helps custom- to eliminate a low risk of service failure positioning, as closer attention is paid to ers to iron out the risk in their supply will become significantly less attractive its impact on lead times. With the help chain. And they will have to operate with as refinancing debt at the “Bank of Hous- of IT systems, companies will leverage a new level of flexibility that allows them ton” becomes tougher. Many companies better visibility on shipments and achieve to cater to an increasingly diverse range will have to revise their current models economies by reducing the number of of customer requirements, employing a of acceptable inventory throughout their suppliers in their supply chain. broad offering of time definite, day defi- chain and to lose some more of the fat. Secondly, the revised capex plans nite services and integrating customs At the same time, to compensate for this of major Russian producers are going clearance into their service offering. loss of buffer inventory, they are going to to lead to a steady rise in the average Challenges remain, including the have to get much more creative in the way age of fixed assets. For the after-sales sheer geography of Russia and the devel- that they build their supply chains. Pro- market, this signals more demand for opment of its transportation infrastruc- duction forecasting will change. Sourcing maintenance contracts and warranty ture, the specific Russian operational or producing in country may become a services. They, too, will have to combine and language requirements of IT sys- more tempting option if quality levels can the demands of lower inventory with tems for vendor management and even, be maintained, with the added benefit service commitments. To achieve this, in some cases, the weather! For many, that local content is seen as an advantage they will have to work closely with their this will necessitate having more inven- by many customers now. And although suppliers in the transportation sector to tory on site than many service compa- consolidation is seen as an effective tool identify the infrastructure that will offer nies are used to around the world. But for reducing logistics expense, traditional the different levels of service that balance every challenge brings an opportunity, methods of consolidation will be under the requirements of their customers. and, despite the negative economic cli- review. Hubbing at one or two strategic For their part, transportation com- mate, this is indeed a wonderful time regional locations in Russia (i.e. outside panies are going to have to adapt their for transport and logistics companies to of Moscow) may become a preferred game. Express logistics companies, for demonstrate their value to the engineer- option to consolidating at origin or having instance, will see their infrastructure ing and manufacturing sector. AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 6 15.07.2009 16:07:39
  8. 8. AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR 7 THE CRISIS MANAGEMENT TOOLKIT Actively reduce volume/output Simple mathematics proves that profit- wise, a volume cut is less damaging than a price cut. Smart companies try to actively reduce volume and aim to keep prices reasonably stable rather than the other way around. In Novem- ber, ArcelorMittal announced it would drastically cut its monthly global pro- duction and expected to see the ben- efits in the spot market prices. Give discounts in kind, not price reductions Price cuts may be unavoidable in a downturn, yet they should be imple- mented as discounts in kind rather than as direct price discounts. A boat builder Harald Schedl, Partner and Shareholder and is giving his retail partners one free unit for every five boats they buy. While this Dr. Dmitry Sharovatov, Consultant, Simon-Kucher & Partners still equates to an actual discount of influence of labor laws, union deals over 16%, volume revenue and margin When an economic crisis hits, good and redundancy packages on P&L can remain higher than if 16% had been planning can see a company through take several quarters. That is too long. knocked off the products directly. the course. Great planning; however, The strategic dimension is important as will see a company ready itself for the companies must position themselves to Re-deploy office staff upturn. benefit from the rebound of the econo- into the sales force my, the beginning of which is probably A common view is that office staff are During periods of economic pres- less than a couple of years away. not good sales people. In many cases sure, two types of managers emerge; As consultants with a global pres- this might be true, but not in every those affected by the negative climate ence, we meet several dozen CEOs instance. One could argue that in the and those who appreciate the reality of every week. From these discussions we current downturn there is not an over- the marketplace and regardless, strive have developed a toolkit of key tactical capacity in production, but an under- onwards. Companies that have a plan and strategic actions that if combined capacity in marketing and sales. to fight their way through the down- smartly into a comprehensive overall European wholesale company turn and prepare for the upturn will program, will help an organization to Würth, for example, moved 10% of its head the list of winners; and in every weather the financial storm and emerge office staff into the sales force during fight, there are always winners. a stronger player than before. the 1993 crisis, with successful results; In an economic downturn, manage- ment usually focuses on cutting costs. While this is important, reducing costs by 15% is not going to save you if your sales volume dips by 30%. We are not in a cost crisis; we are in a revenue crisis. A look at Profit and Loss (P&L) shows that only a plan covering all profit drivers, cost and revenue has the stability required to guide a company over the next couple of years. Realisti- Property of www.dreamstime.com cally, the objective cannot always be on improvement and instead should focus on avoiding further decline. Management needs a plan that combines tactical and strategic ele- ments. Tactical actions must be low cost and offer immediate results. The AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 7 15.07.2009 16:07:40
  9. 9. 8 AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR the hotel segment and we see suppliers to the truck industry deploying sales teams to emerging markets in Eastern Europe and the BRIC. Can I take the competition out of the market? Many companies were smart and horded cash or secured access to debt during the recent boom years. They are now in a perfect position to con- duct the necessary due diligence and buy selected competitors in the mar- Property of www.dreamstime.com ket. BA and Ryanair are cases in point, with discussions with Qantas and Aer Lingus respectively, as is Microsoft and its renewed pursuit of a part of Yahoo. Can I use the current market price and we've heard similar stories recently, age and companies must address three for a share buyback programme? both in the service and more indus- exemplary questions: Tool hire firm Speedy Hire announced trial sectors. This approach can come extensive share purchases of its top in many shapes and forms, from giving How can I diversify my business management a few months ago. Such office staff short and intensive training further to reduce the dependency on actions signal the strong belief of man- and then letting them work off a 'hunt- particular segments or markets? agement in the future of the company ing list’ of potential new customers, to It is obvious that the re-deployment of and puts investors in a position to ben- teaming them up with sales veterans in sales resources from traditional markets efit from the rebound. It also shows a particular territory to take administra- with slowing demand into completely management's confidence in the suc- tive work off the sales reps' shoulders. new segments (whether they are geog- cess of the crisis strategy it has put Other roles include sending techni- raphies or customers) can be signifi- together. cal staff to discuss the development of cant. The strategic dimension; however, The right combination of activities customized technical solutions with is to carefully select which segments to in a well coordinated package is the customers and manning trade shows focus on from a mid-term perspec- key to ensuring quick wins and better in new markets. More people will typi- tive. For example, one of the leading positioning in the mid-term. Successful cally achieve more sales, especially if manufacturers of kitchen equipment managers have the vision to develop a you have the resources to attack new for restaurants is now expanding into clear plan. segments/markets. Use customized solutions to address your customers' anxieties With customer anxiety exacerbated, creative suppliers have the chance to shift priorities. For example, Georg Kofler has just launched Kofler Ener- gies AG in Austria; a company that covers the complete cost of any energy- saving investments and guarantees cus- tomers a 10% energy cost saving. The company receives all savings above this level for 10 to 15 years. This is an exem- plary business model that addresses Property of www.dreamstime.com specific customer needs and fears and should work well even in the current climate. Strategize to meet the upturn The strategy dimension must also be part of the overall management pack- AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 8 15.07.2009 16:07:42
  10. 10. AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR 9 INTERVIEW WITH ADAM GONOPOLSKY, HOLDER OF CHAIR “TECHNIQUES & WASTE UTILIZATION TECHNOLOGIES” MUET; DEPUTY GENERAL DIRECTOR, SUE «EKOTECHPROM» Interview by Nina Anigbogu, Publications Manager, AEB switch to garbage industrial process- 2012/14. An analysis of the biological ing, which will replace the practice of processing capabilities showed that 18% burying garbage. Moscow’s authorities of the waste can be biologically pro- have analyzed these opportunities and cessed. An analysis on the possibility of offered the following scheme (Diagram applying engineering processes showed 1) for the processing of incoming gar- that 27% of the household garbage can bage. be recycled; while garbage disposal First, we must determine the sites will be operating at a maximum resources that the territory possesses. capacity of 13%. There remain another Then, we must determine the 42%, which we don’t know what to do amount of energy in the form of heat with. To maintain equilibrium, we must and electricity that can be allocated choose a type of garbage processing for garbage processing; after all, con- technique that is applicable to Moscow. veyors do not turn by themselves, they A decision was taken to install modern, Could you tell us how the recycling of need energy; Moscow, however, has an ecologically safe garbage disposal facto- waste products is organized in such an appreciable shortage of energy (there ries/incineration plants, in commercial enormous city as Moscow. What are the are new buildings that can not be areas, as far away from residential areas main streams of municipal waste prod- occupied due to the absence of elec- as possible. These modern and ecologi- ucts; is Moscow now ready to solve the tricity). So, the issue becomes - how cally safe garbage disposal plants will be problems facing it in this sphere? much energy can be spent on process- responsible not only for garbage incin- Moscow is a European city and recy- ing garbage? What is the capacity of the eration, but for the simultaneous gener- cling problems here are solved in the garbage disposal systems? How much ation of energy in the form of electricity same way as they are in all European and what type of water is necessary to and heat. This is the future of the city cities. The annual total amount of waste process garbage? All these engineering of Moscow. In Moscow, a new govern- products in Moscow is approximately systems should be harmonized with ment program makes provision for the 5,300,000 – 5,400,000 tons. All industrial the requirements for garbage disposal. establishment of recycling enterprises technologies used in the world are being Today, about 81% of the solid household near incineration plants, so that the applied in Moscow today. Moscow has waste in Moscow is buried and 19% energy produced by the plants during garbage sorting and garbage process- of all garbage is burnt or recycled. As the incineration can be used to recycle ing factories and a two-tier system of we run out of land for garbage burial other types of waste products. This is removing garbage, which involves the sites, the picture will change. The cur- a worldwide state-of-the-art integrated transfer of garbage from small sized gar- rent volume of 5,300,000 – 5,400,000 approach, which Moscow is also fully bage collecting trucks into large vehicles tons will have to be restructured by in tune with. for transporting garbage from one point to another. Moscow has modern, eco- logically safe incineration factories. Mos- cow’s waste management services take the garbage to collection ranges, which are not dumps, but well-equipped tech- nical facilities for burying solid house- hold waste; the primary goals facing municipal services are being solved with the use of the aforementioned technolo- gies. There would be no problems if it were not for the shortage of available land for garbage collection facilities in Moscow and its regions, which will be exhausted completely by 2014. There- fore, it is necessary to change accents in Adam Gonopolsky, Holder of Chair “Techniques & Waste Utilization Technologies” MUET; Deputy General Director, processing garbage. First of all, we must SUE «EKOTECHPROM» AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 9 15.07.2009 16:07:44
  11. 11. 10 AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR In the Russian Federation 90% of house- Diagram 1: Alternatives of municipal waste handling in Moscow. hold waste is taken to dumps. This meth- Total volume of wastes: 5,300 thousand TPA od has been recognized as inefficient and dangerous to the environment. How much time is required to replace these dumps with incineration factories? I can say with certainty that not 90% but 97% of all household waste products are dumped. It truly is an ineffective and dangerous method. I cannot give you the figures for Russia as a whole, because this is a question of finance (each region has its own resources) and given the current economic crisis, it is difficult to plan for the implementation of expensive and complex projects such as an incineration factory. However; I can say that according to the Scheme (Diagram 1), by 2014, Moscow will reduce the volume of buried household waste by six fold. capacity output of one million tons per ash (the remaining 24% is slag). This annum, the latter will be at least 25% means that only 1% of the waste prod- Those who favour the construction of cheaper than the former option. uct requires neutralization; all factories incineration factories say that this meth- without exception not only in Russia, od allows one to solve environmental Some say that incinerators do not but all over the world have a division, problems, improve sanitary norms and destroy waste products completely, but which deals with the neutralization of make this sector a profitable one. What only decrease their volume (by 90%) and ash. There exist chemical methods of income should we expect from the con- weight (by 60%). One also hears that ash neutralization (with the help of humic struction of such factories? How soon will and emitted gases (dioxins, for example) mineral concentrates) and mechanic- they be recouped? are pollutants and cause acid rains and a chemical methods (which neutralize Incineration factories are heating plants number of diseases. If no gases are emit- ash to a degree, defined by ecological fueled by waste. They produce electric ted, do these harmful substances remain standards). Regarding the issue of gas energy and heat, which serve as an in the ash. If so, how can we solve the emissions, these occur when there are additional source of income. These are problem of these residual effects of burn- no gas purification systems in place; technologies that have already been ing? Is there a reasonable and economi- in all modern factories, a standard gas employed by fully functional factories cally justified alternative to burning? purification system accounts for half of in Moscow; these technologies allow Indeed, the volume decreases tenfold the factory’s construction cost. Inciner- the neutralization of ash and slag waste and the weight decreases by approxi- ation factories all over the world, work and their subsequent conversion into mately 4 times, that is, not by 60% in conformity with their corresponding various types of construction materi- but by 75%, waste products are not national ecological specifications. There als, which are an additional source of destroyed completely because they seems to be no correlation between income. As of today, the money invest- also contain substances that do not emission and human disease. The lon- ed into such factories can be recovered burn, for example, stones, sand, metal, gest life expectancy is in Japan, which within 10 to 12 years. If the energy etc. The ash is neutralized at the fac- has 2,000 of the 4,000 incineration fac- output of these factories is increased, tories so that the remaining 25% of tories in the world; thereby, showing the period will be reduced by approxi- the waste product contains just 1% of that there is no such correlation. mately one and a half times. Is there a correlation between the size of an incineration factory and its economic viability? There definitely is a correlation! The Property of www.dreamstime.com larger a factory, the shorter the period of time taken to recover the money invest- ed and the lower its operation cost and maintenance and the cost of heat and electricity produced. Therefore, if we take 3 factories with a capacity output of 300.000 tons and a factory with a AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 10 15.07.2009 16:07:46
  12. 12. AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR 11 As we search for alternatives to waste applied to ecological housing construc- tries with extensive recycling practices, incineration, one must bear in mind tion? Can a system of installing mini- apartment buildings and houses are low- that alternatives must be selected based incinerators in houses and apartments rise and have no refuse shafts; therefore, on the region in question. Each region is be introduced in Moscow? Or any other the recycling of garbage is economically unique. For example, St. Petersburg has system, where the residents sort out the justified. In cottage apartments, garbage several nuclear power stations which garbage themselves? recycling is possible because the garbage produce an ample amount of energy, does not pass through a refuse shaft; while Moscow buys its energy from Yes, this principle is being applied – the therefore, it can be sorted. other regions. Secondly, St. Petersburg polluter pays! The installation of mini- has numerous heavy industry factories, incinerators in houses and apartments Various departments are involved in which are capable of processing raw is not possible, because it requires the recycling and processing of waste prod- materials (both primary and second- use of fire within the housing structure, ucts (municipal services, transport orga- ary materials), as opposed to Moscow which is a major fire hazard, forbidden nizations, and sanitary inspections). where 85% of all industry is high-tech by all fire rules. They also employ various professionals assembly manufacture; virtually all raw I can explain why introducing the (engineers, ecologists, chemists, physi- materials’ processing facilities have been household waste-sorting system is not cists). Is there a model (or system) that relocated outside Moscow. Therefore, as possible. My students and I conducted allows one to effectively bring together of today, Moscow has no economically a study in which we found out that everyone who is involved in the process justified alternatives to burning, while only 8% of all housing garbage could be of reducing, reusing and recycling? for St. Petersburg, with its industry and recycled. Half of the household garbage Yes, such a system exists – the city energy capabilities, these do exist. can not be reused. After it goes down housing and communal services system. the refuse shaft, passing all the floors of a There are numerous supervising bodies Are there any waste-free technologies, at multi-storied building, into a container, and organizations engaged in practical least at the experimental stage? it is loaded onto a garbage truck and activities and I assume that the absence Being an engineer I can tell you that delivered to a waste-processing station. of a crisis similar to that of Naples is a there are no waste-free technologies. – At this point, only 8% of the garbage clear indication that this system func- At all? Yes. Waste products are pro- collected is recyclable; all other garbage tions well. The three R principle (reduce, cessed, which leads to the production loses any commodity appeal. In coun- reuse, recycle) is also in place. of secondary waste products; these, when processed, lead to the produc- tion of other waste products and it goes on and on. First of all, this process is very expensive. Secondly, there is a relationship between the number of times waste is processed and its toxic- ity – the more, the toxic. Do incineration factories use energy? What research is being done to deter- mine opportunities for the use of alter- native energy sources in this area? The incineration factories do not use any fuel or energy; they are powered by waste. The waste/garbage produces as much heat as peat, slates and certain kinds of brown coal. No additional fuel is needed; this is why the number of incineration facilities across the world doubled over the last decade. The research on alternative sources of ener- gy in this area focuses on increasing energy efficiency, in other words, how to better utilize the energy produced by the emitted gases (or how better to use the heat obtained and how to increase the production of useful energy). A lot of countries follow the “Polluter Pays Principle.” Can this principle be AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 11 15.07.2009 16:07:47
  13. 13. 12 AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR CRISIS MANAGEMENT – STRUCTURING CHAOS IN THE BUSINESS ENVIRONMENT OF ENERGY COMPANIES Mirja Mutikainen, M.Sc (Tech.), MBA, Director, Poyry Energy Consulting (Helsinki) As a part of this development, the the agreed schedule. Some generation government decided to develop plans companies have to meet these obliga- to gradually liberalize Russia's energy tions under the contracts for delivery market (Diagram 1). Until today, 30 of capacity, and penalties have been set percent of the energy market had been for the delayed commissioning. liberalized and this share increased to Simultaneously, many power gen- 50 percent by July 1st, 2009. The fol- eration facilities are technically obso- lowing diagram (Diagram 1) shows the lete or becoming obsolete. In order pace of realized and planned tariff de- to guarantee the security of energy regulation for industrial customers. supply and continuity of operations, It is widely assumed that power the companies need to invest in asset market liberalization will continue at refurbishment and replacement. The some stage, bringing a lot of uncertain- current power tariffs are by far too ties to the market players. Major tur- low to encourage investments. Also, T he financial and economical cri- bulence comes from the development the generating companies are facing a sis has hit the Russian economy of capacity market regulation. The substantial increase in investment costs hard, causing tough times for the transitional capacity market has been due to difficulties in obtaining inexpen- government, business sector and launched for the period that started in sive financing. households. Export industries have July 2008 and will last until December Lack of financing will force the become a key factor to keep the wheels 2010, but it lacks transparency. The companies to continue with the cur- running in the country, energy being long-term capacity market model is still rent equipment, with only most urgent recognized as one of the key elements. unclear, while for strategic investors, refurbishments and replacements of Simultaneously the government's plans investing in generation, the competi- obsolete equipment. In Russia, there is to liberalize Russia's wholesale energy tive capacity market was expected to good experience regarding power plant market have been delayed. be an important source for investment operations and maintenance (O&M); Russian energy companies face sig- return. There are also industry players, however, there is insufficient expertise nificant challenges at the moment, and who state that the capacity market in in new investment projects. This may their in-house approaches seem to be Russia is not needed at all, referring lead to non-optimal, even wrong selec- unsuccessful at tackling the situation. to the structure of power markets in tion of vendors and technical solutions This article describes how a business the Nordic countries and continental in this pressurized situation. planning approach derived from Scena- Europe. Regarding strategic investors, the rio Analysis can be adopted for mapping In the transitional capacity mar- extremely non-favourable develop- the uncertain future of energy compa- ket, there are various mechanisms for ment has been caused by the economic nies both in the short and long run. capacity trade, some of them include crisis, which has negatively affected obligations to implement an invest- industrial production and led to a There are major challenges ment program, i.e. new capacity com- decrease in energy consumption. The regarding industry reform, missioning or modernization under shrinking employment base combined investments and demand JSC RAO Ministry of Ministry of A new model and structure for the UES of Russia Industry & Energy Industry & Trade POWER SECTOR REGULATION energy market was introduced in Rus- Ministry of Energy fuel & energy complex sia in order to increase the attractive- Rosenergo Federal Energy Agency ness of the industry to strategic inves- of the Ministry of Industry & Energy New lobbying unions & tors; to allow replacement of obso- organizations emerged, e.g., NCP ”Council of power lete generation facilities; to improve generation companies” NCP “Council of the Market” competitiveness of the energy industry; self-regulation body REGULATION WHOLESALE of the wholesale power market to implement new features and new MARKET ”NCP ATS” JSC ”Administrator of opportunities in energy trading and the Trade System” Legend: commercial operator of Closed/reformed entities to rewrite the role of governmental the wholesale power market Operational entities authorities. Diagram 1. AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 12 15.07.2009 16:07:47
  14. 14. AN OVERVIEW OF RUSSIA'S MACHINE BUILDING & ENGINEERING SECTOR 13 100 95 making business planning even more 90 85 75 difficult. 80 70 60 Cost cutting is in most cases a natu- 50 ral solution to keep companies alive, % 40 40 20 and a majority of Russian companies 20 0 start by cutting down on labour cost. 0 However, power production is not a 1.01- 1.07- 1.01- 1.07- 1.01- 1.07- 1.01- 1.07- 1.01.2011 30.06.2007 31.12.2007 30.06.2008 31.12.2008 30.06.2009 31.12.2009 30.06.2010 31.12.2010 labour intensive industry compared Figure: Maximum share of the power energy traded to industrial consumers at regulated tariffs (%). with for example, the service sector. Source: The RF Government Decree, 30/11/2006. Therefore, cost cutting potential should with price increases is already impact- suspend and reduce their investment be searched for in other areas, like gen- ing demand projections. The electricity programmes. However, investors that eration process efficiency. consumption for January-April 2009 have signed the contracts for delivery declined 5.9 percent year-on-year. The of capacity have to meet their obli- Crisis Management – addressing main recession is also causing an increasing gations. They attempt to renegotiate problems, focusing on key actions amount of consumer non-payments to the schedules and insist on further In order to structure the chaos in the the power supply companies. This may regulation development by lobbying business environment for business extend to non-payments to the grid respective authorities. This effort may planning purposes, we want to intro- companies and generators. Should the end with a success for the individual duce a concept for Crisis Management. projected price increases go into effect, company, but with an industry level The concept is based on scenario analy- consumption will doubtlessly drop failure, as recent changes in authorities sis, i.e. describing "alternative futures", further and non-payments increase. have brought in new people with new or scenarios, in a meaningful way. Sce- However, a gradual price increase is interests and – in some cases – without nario analysis can be used either to inevitable for achieving the long-term a deep understanding of the industry. formulate a strategy or a plan, or to test targets of the energy industry. the Government officials at all levels existing plans against alternative future In case of combined heat and power continue to have considerable power in outcomes. production (CHP), the business envi- energy industry issues. The scenarios are formed based on ronment is even more complicated. All energy companies are analyzing certain assumptions, identifiable trends In many cases, the company running their future business environment and and uncertainties. For each scenario, a CHP plant does not run the district markets from the point of view of the key indicators and triggers will be iden- heat business, i.e. does not have right to present financial and economical crisis. tified, in order to be able to estimate, as actions for developing the heat econo- This should lead to a significant adjust- time goes by, which scenario is becom- my. Therefore, it can not improve the ment of strategic plans for the energy ing more probable, which less probable, efficiency of heat load, which would business and asset development; unfor- or do we need totally new scenarios. contribute to the efficiency of electric- tunately, in most cases, the companies To get some practical value out of ity generation. do not have such plans. In the future, these scenarios it is crucial to define The upstream value chain, i.e fuel the companies need to clearly define a company vision for its business in supply, is not without major problems what their core business is. each scenario. The visions will be com- either. The gas market is still heavily The initiation of changes can be pleted by constructing respective road monopolized and not at all transparent. extremely tedious as energy companies maps and building decisive flexibility to The solid fuels are subject to transpor- have become increasingly bureaucratic action plans. tation tariffs, which are government set and their business processes are very Scenario thinking and “decisive flex- and may vary. often inefficient. Additionally, the Not- ibility” of action plans can be used both Renewable energy plays a negli- Invented-Here (NIH) syndrome is com- in the short and long term approach to gible role in Russia as there is a lack of mon among many Russian companies: crisis management. In the short-term incentives and investors. In the area of "We know our internal problems better approach, a few “mini-scenarios” are energy efficiency, there is considerable than any outsider". As a consequence, built in order to capture the most rel- potential for development; however, only very few companies have really evant short term uncertainties. A set of this cannot be realized due to a lack of tried to address the long-term strategic triggers or indicators will be connected expertise and the governmental sub- problems by any analytical means. with each scenario – they are evidenc- sidies policy. The nuclear generation Some of the key elements of pre- es, which increase or decrease the prob- assets remain under the government's dicting the future in the energy compa- ability of that scenario. In the long-term tight control. ny are the price models and forecasts. approach to strategic planning, relevant The source of price forecasts should be long-term scenarios about the business Energy companies suspend an independent party, with a thorough environment will be constructed, and planned investments and renew understanding of the Russian energy a set of weak signals and early warn- their strategies business, but without any other busi- ing indicators are used to estimate the As a consequence of the present situ- ness interests in the market. At the changes in the probability of a certain ation, generating companies have to moment, this is often not the case, scenario. AEB BUSINESS QUARTERLY • Summer 2009 BusinessQuarterly #02-2009.indd 13 15.07.2009 16:07:48

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