Accession to WTO will force government to ditch badly needed subsidies

The Russian chemical industry could be on the verge of a serious crisis caused by state plans to abolish subsidies to domestic producers.

The move follows Russia’s accession to the World Trade Organization (WTO), which comes with certain obligations. Starting next year, the government will have to cut all the forms of support for the national chemical industry, including the reduced tariffs for gas, electricity and railway transportation. In addition, the government will end the practice of concessional lending to domestic exporters of chemical products.

Meanwhile, the plans have sparked discussion among Russian producers of chemistry products, which say the loss of state subsidies could result in the collapse of many domestic manufacturers, in particularly small and medium sized firms.

According to a recent report from George Kalamanov, deputy minister at the Russian Ministry of Industry and Trade, the WTO accession may pose a threat to more than 600 small and medium producers.

The Russian Union of Chemists is concerned. Union head Viktor Ivanov says most domestic chemical producers export their products, but being located far from the border these companies badly need discounts from railway companies to transport their products.

The situation is aggravated by the uncontrolled growth of tariffs for energy, the high level of depreciation on industry equipment and the niche specialisation of the Russian chemical industry, which focuses on the large-scale production with minimal processing.

Help needed

Despite its vast resources, Russia currently accounts for only 1% of global chemical production, with annual per capita production at 4.6 kg, compared with the global average of 30 kg per year.

According to Michael Sutyaginsky, chair of Group of Companies Titan, one of Russia’s largest manufacturers of chemical products, so far, the government has paid inadequate attention to the development of the industry, even with the subsidies. He cites in particular administrative and bureaucratic burdens, as well as a lack of investment both for modernisation of already existing facilities and the construction of new ones.

Ivanov believes that there is an urgent need to restore the scientific potential of the industry that existed during the Soviet period. This could be achieved through the consolidation of research institutes and centres in the field of chemistry through clusters.

One such cluster has already been established in the Russian city of Dzerzhinsk (Nizhny Novgorod region), currently the centre of Russia’s chemical production, which houses more than 20 chemical companies employing more than 300,000 people.

But the government believes that crisis can be avoided. Denis Manturov, Minister of Industry of Trade, says that in contrast to other sectors of Russian industry, the situation in the chemical industry is still quite good. He adds that many leading chemistry producers have left state ownership in recent years and this has led to investment in modernisation. Manturov believes they can compete with foreign producers without state subsidies.