Summary
1. The continuing poor power generation and distribution situation in the Primorsky region is forcing the local population to seek alternative sources of power. Local householders, office owners, agencies, companies, and manufacturers are purchasing benzene and diesel generators. This report is an overview of the generator market in the Primorsky region. The report provides information on market needs, competition, market access, and a list of Russian companies interested in receiving proposals from U.S. companies.
Energy in Primorye
2. The power supply situation in the Primorsky region is disastrous, and among the worst in the Russian Far East and Russia. The worst situation is in the southern Primorsky region where the power is centrally supplied from 4 power plants. Having independent power generating facilities, the northern territories of the Primorsky region suffer from high prices and transportation tariffs for coal and fuel oil. During the past several years, the region has experienced constant cut-offs, especially from November to may when the power demand increases. Cities, towns, and villages often lack electricity for 8-20 hours every day. Manufacturers and people incur tremendous loses: equipment does not operate, refrigerators leak, food products go bad, patients can not get treatment at hospitals, street and traffic lights are off, school classes are shortened or canceled.
3. One reason for the crisis is expensive power resources. Coal is the main power resource of the Primorsky region (70%); fuel oil is delivered from other regions of the Russian Far East and Siberia (30%). Prices for both local coal and imported fuel oil often exceed the world market price (for example, diesel fuel: USD 340 per 1 ton - domestic price; USD 210 per 1 ton - world price). Most of the region's mines are almost depleted, and the local coal industry needs restructuring. Coal is mined at a depth of 400 meters. Meanwhile, local power generating companies try to minimize expenses on power resources and purchase coal at lower prices from Siberia and China.
4. The power industry suffers from excess power capacity and ineffective operation. With a production decline in recent years, power consumption in the region decreased by 20%; total capacity of the region's power plants exceed demand by about 25%. Working at 60% total capacity increases cost per kilowatt. Cost is also escalated by a long chain of re-sellers involved in transactions from fuel supply to power distribution. Local authorities unsuccessfully tried to decrease the number of re-sellers to reduce the cost of the power.
5. These reasons lead to high prices and nonpayments. Tariffs in the Primorsky region double Russia's average. For example, Moscow power tariffs are - .42 rubles/kW for legal entities (.15 rubles/kW for householders); Primorsky region tariffs - .78 rubles/kW for legal entities (.30 rubles/kW for householders).
6. Half the tariff for householders is subsidized by the region's budget. The main non-payers are the navy and army (subsidized from the federal budget); hospitals, schools, municipal organizations (subsidized from the municipal budget); and bankrupt former defense enterprises. Power generating companies are prohibited by government decree from stopping power delivery to the biggest debtors, the army and navy. Without funds to purchase fuel and pay salaries, power-generating companies reduce power generation and cut off private enterprises and householders, the only payers for delivered power.
Generators - market demand
7. Due to unreliable power supplies, a number of private enterprises who need permanent power supplies purchase generators. Though a generator requires additional expense (a fuel supply and storage, spare parts, wastes, ecological expertise, and permission from local authorities), companies prefer to have a back-up or alternative source of power during cut-offs.
8. The cost of power generated by diesel generators is sometimes 24 to 30 % less than the power provided by power generating companies. Power tariffs may increase to fulfil the Russian government's decree "on separate payment for operations in energy sector" issued in July 1998, which states that power consumers must separately pay power generating stations and distribution companies. This may further boost demand for autonomous power generating systems.
9. The main buyers are private clinics, ports, hotels, office building owners, airports, customs, warehouses, stores, plants, factories, and even kiosks. Other potential buyers are municipal organizations, private schools, universities, homeowners, and rural settlements not supplied by power generating companies (especially in north Primorye).
10. Voltage in Russia is 220 v for non-manufacturers and 380 v for manufacturers. Frequency is 50 hertz.
11. Best-sellers are inexpensive and reliable benzene and diesel generators. Gas generators are not wanted due to the lack of gas in the Primorsky region. Companies interested in purchasing a generator will try to find the least expensive and the most reliable one available in the market. Small benzene generators (1.5 times less expensive than diesel generators) are usually bought by householders and companies for their offices. Manufacturing companies prefers Diesel generators. The following ranges of generator capacity are in highest demand:
- .5-3 kW for individual ice-cream sellers, kiosks, and shops;
- 3.5-4 kW for householders and offices;
- 4-10 kW for offices, and a group of houses;
- 20-50 kW for banks;
- 150-300 kW for food-processing companies, car servicing centers, warehouses
- 1,000 kW for large manufacturers.
Foreign competition
12. The market of generators has tough competition. At least 15 Russian and foreign companies offer benzene and diesel generators from Ireland, Germany, South Korea, Japan, the USA, Bulgaria, and France from .6 kW to 5,000 kW. Though inexpensive, generators produced in Russia are of no interest to local customers due to high fuel consumption, noisiness, and unreliability. Imported generators include the product lines of Honda, Kubato, Panasonic, Yamaha, Komatsu, Isuzu, and Sawafuji (Japan); Hyundai (S. Korea); caterpillar, Cummins, and Detroit diesel (USA); Wilson (Ireland/USA), Geko (Germany), Worms-Robin (France), Rigas Diesels (Latvia), and Elma-ead (Bulgaria).
13. Most European and Korean companies target the market for residential buildings and offices (capacity from 4 to 40 kW). U.S. and Japanese companies provide diesel generators (capacity from 40 to 1,000 kW) for manufacturers. Some Japanese companies find it useless to offer small diesel generators in the Primorsky region, because Russian sailors and tourists visiting Japan purchase generators individually without paying import duties and value added tax. However, Kubato and Honda (Japan) are seeking dealers for small (1 kW to 6 kW) generators. To be competitive, companies need to provide lower prices and/or additional services.
Prices
14. Prices for imported generators range from USD 200 to 1,000 per kW of rated capacity depending on the total capacity of generators and additional accessories. The best prices for good quality generators are offered by European companies. U.S. and Japanese generators are considered expensive, but are highly rated by Russian companies for reliability and excellent operating characteristics. U.S. generators are usually 30% to 40% more expensive than European generators.
15. To attract potential dealers and buyers, companies offer additional services. Japanese companies supply generators with a set of spare parts. European companies sell their products certified either by SGS or Russian Gosstandart. Some U.S. companies offer attractive payment terms (for example, full payment after installation). Some companies offer short periods for delivery from warehouses or catalogs with description of additional parts in Russian. The following are average prices per 1 kW for diesel generators with total capacity from 5 to 50 kW in the Primorsky region.
Table #1
| Company | price for dealer | price for buyer | notes |
|---|---|---|---|
| Russian Manufacturers | - | USD 170 | - | Wilson | USD 170 | USD 200 | with customs duties vat, transportation certification costs |
| Komatsu | USD 160 | - | w/o transportation and certification costs, customs duties and vat |
| Sumitomo (Komatsu rep.) | - | USD 700 | with transportation cost and a set of spare parts |
| Worms-robin (via regional dealers) | - | USD 700 | with customs duties, vat, transportation certification costs 1-year warranty, instructions in Russian |
16. In addition to price, the adaptability of generators to local fuel is very important. Russian generator users use benzene, diesel fuel, and fuel oil. Most imported generators are not designed for fuel and work only on high quality diesel fuel or benzene. Though usage of fuel oil is prohibited in large cities due to high sulfur content (which is very dangerous for health), it is used in rural territories and enterprises located outside the city. In cities, mostly imported benzene and domestic diesel fuel is used. The following are Russian standards for fuel oil and diesel fuel used in generators:
Table #2
| Characteristics | Fuel Oil | Diesel Fuel |
|---|---|---|
| Density at 20c, g/cm3 | 1,015 | .81 |
| Viscosity at 80c | 8-16 | 6 |
| Kinematic viscosity at 80c, centistoke | 59-118 | 40 |
| Ash Quantity, % | .12-.14 | .025 |
| Admixtures, % | .8-1.5 | .1 |
| Water content, % | 1.5 | 0 |
| Sulfur content, % | .5 (low sulfur content), 2 (mid sulfur content), 3.5 (high sulfur content) | 3 |
| Heat of combustion, Kcal | 40.4 | 42.62 |
| Air content, cub.m/kg | 10.45 | - |
| Hardening temperature, c | 10-25 | -10 |
| Temperature of flash in open crucible, c | 90-110 | 30-90 |
17. Generator owners often use less expensive and low quality diesel fuel which does not meet Russian standards and is inappropriate for imported diesel generators (for example, for south Korean, German, and Japanese generators). Japanese sellers of generators offer special additives to improve the quality of diesel fuel to Russian companies. Sometimes, Russian owners of diesel generators try to improve the quality of diesel fuel by mixing it with kerosene or benzine. According to some generator users, Wilson diesel generators (England) proved to be the most reliable and least dependent on the quality of local diesel fuel.
Future prospects
18. Russian companies expressed different opinions about the future market for generators. "Pessimists" think that the demand for generators which decreased during the financial crisis will stay low if the exchange rate remains low (16 rubles per dollar) or goes lower. "Realists" hope that the demand for generators in the Primorsky region will remain stable despite the inflation. The Primorsky power generation sector could worsen at the winter, and the demand for autonomous sources of power could increase to last year's level. "Optimists" believe the financial and economic crisis in Russia may change the country economy's focus from import to development of local production and thus, increase the demand for power. In this situation, demand for generators as alternative or additional power sources will increase, providing new opportunities both for manufacturers and distributors.
19. The future of imports, not only generators, depends on the economic development plan chosen by the new Russian government. Even if imports are limited, U.S. manufacturers may find opportunities in joint production of power generating equipment in Russia.
Market access
Payment situation
20. With the currently paralyzed banking system in Russia, trade almost stopped because companies are unable (not unwilling) to transfer money outside or within the country. Most buyers of imports are companies operating through off-shore banks. Before the banking system is revived, banks will need a long period of restructuring, merging, bankruptcy, and confidence rebuilding.
Price and taxes
21. Price remains a key issue for local buyers. To be competitive, U.S. suppliers have to offer reasonable prices. If a U.S. company does not have an office and/or a warehouse in Russia and plans to supply equipment from the USA directly to dealer, the price may significantly increase after payment of all duties and taxes by dealer. Besides transportation and certification costs, a significant sum of money will go to customs: 5% customs duties, 20% value added tax, and 3% import duty.
Certification
22. Power generating equipment (including generators) can not be sold in Russia without a Russian safety certificate issued by Gosstandart (Russian State standard agency) or its subsidiaries in the regions. The Primorsky center for standardization, metrology, and certification, a subsidiary of Gosstandart in the Primorsky region, certifies generators with engine's working volume under or equal to 250 cubic centimeters. Generators with the engine's working volume over 250 cubic centimeters should be certified in Gosstandart (Moscow).
23. Generators can also be certified by SGS (Swiss certifying company). Gosstandart recognizes certificates issued by this company. Some European companies sell generators with SGS certificates to Russia.
Russian dealers
24. Most local sellers of generators have been in the market for at least 3 years and usually have dealer or agent relations to sell imported generators. Local companies are interested in new brands to present in the market. With tough competition, dealers expect U.S. companies to provide support.
25. Promotion support is one of the most important issues for Russian dealers. Companies want a regularly updated catalog of generators and additional parts (ventilation, fuel containers, electric starters, automatic control systems, etc.) With a brief technical description in Russian and in the metric system with an attached price-list. A sample, in addition to a catalog, will be better. For large generators, a videocassette demonstrating installation and operation of a generator is very important.
26. All dealers seek favorable payment terms. Some dealers have 100% commodity credit for expensive equipment and pay the supplier after the equipment is sold. Others pay 10% to 20% of the total price to the supplier up-front funds and return the rest after the equipment is delivered and sold. Some companies collect orders for equipment on behalf of manufacturers, receive 100% prepayment from local buyers, and send payments to the manufacturer.
27. Having engineers on staff, local dealers install generators, provide a one year warranty to Russian buyers, and usually service generators after installation. It is important to them that generators be easy to service and easy to order spare parts. Some companies expressed interest in having a partner to jointly assemble generators locally to minimize expense. U.S. companies, in this case, will have to supply all necessary parts.
Direct sales
28. Direct sales of large generators (100 kW to 1,000 kW) are possible to fishing, fish-processing, shipping, and mining companies in the Primorsky region. Generator sets should have Russian or SGS certification. The supplier is expected to install equipment and provide warranty services.
Key contacts
29. Local authorities
Primorsky region administration
Department of municipal economy and fuel resources
16 Aleutskaya street, suite #10
Tel/fax: (7-4232) 229-720
Contact: Sergei Mirzlyakov, head of technical department
The department is responsible for supply of fuel and equipment to municipal entities in the Primorsky region.
Primorsky center of standardization, metrology, and certification
54 Praporschika Komarova street
Vladivostok, Russia 690600
Tel: (7-4232) 228-729, 229-840
Fax: (7-4232) 264-728
Contact: Anatoly Rudometov, head of certification department
30. Companies
"BIUS"
49 Partizansky Prospekt
Vladivostok, Russia 690000
Tel: (7-4232) 250-912, 259-901
Fax: (7-4232) 258-259
Contact: Yury Boiko, president
The company sells automotive products and boilers, and researches opportunities for wind power generation. The company is interested in receiving proposals from U.S. suppliers of generators and heating equipment.
"Caterpillar"
29/a Stanyukovicha street, suite #48
Vladivostok, Russia 690600
Tel: (7-4232) 514-401
Fax: (7-4232) 514-400
Internet: uscatek9@ibmmail.com
Contact: Darrel Elijah, regional director
"Dissk"
4 Karbysheva street, off. #506
Tel: (7-4232) 462-739
Tel/fax: (7-4232) 466-924
Contact: Yury shapovalov, technical director
The company designs ships, and sells generators and heating equipment. The company is interested in establishing direct dealer relations with U.S. manufacturers of ship equipment, generators, and heating systems.
"Mikma"
12 Mordovtseva street
Vladivostok, Russia 690600
Tel/fax: (7-4232) 269-383, 268-031
E-mail: mikma@online.vladivostok.ru
Contact: Nikolay Omelchuk, manager
The company is a dealer for Rigas diesels (Latvia) and sells ship and stationary generators. The company is interested in distributing generators (3 kW to 60 kW) manufactured in the USA. Promotion support and favorable payment terms are expected from partner.
"Prometey Servis"
22 Svetlanskaya street, suite # 5-8
Vladivostok, Russia 690000
Tel: (7-4232) 223-047, 260-274
Fax: (7-4232) 223-982
Contact: Valery Skopachev, director
The company sells boilers and heating equipment and is interested in receiving price lists and technical characteristics for generators with capacity over 1 kW.
"Traffic"
55 Pologaya street, 1st floor
Vladivostok, Russia 690000
Tel/fax: (7-4232) 268-428
Contact: Victor Shirogorodsky, director
The company is an authorized Ekonica-Tekhno dealer offering European generators, heating, and diagnostic equipment, and boilers. The company is interested in becoming a dealer for a U.S. manufacturer or distributor of benzene and diesel generators.
"Valerian-Plus"
13 Komarova street, suite #105
Vladivostok, Russia 690091
Tel: (7-4232) 407-824
Tel/fax: (7-4232) 407-818
E-mail: power@online.vladivostok.ru
Contact: Oleg Kudelya, manager
The company sells diesel generators, heaters and boilers.
"Vladtekhno"
4 Abrekovskaya street, off. #51-54
Vladivostok, Russia 690001
Tel: (7-4232) 269-044, 268-903
Tel/fax: (7-4232) 268-187
E-mail: freddy@online.ru, freddys@online.marine.su
Contact: Vladimir Safonov, director
The company sells accumulators and is interested in distributing small generators (1.5 to 10 kW).
Znak-Oil
14 Borodinskaya street
Vladivostok, Russia 690000
Tel: (7-4232) 460-710, 467-854
Fax: (7-4232) 462-471
E-mail: znak@mail.primorye.ru
Contact: Andrey Dulov, manager
The company sells motor oils and is a distributor of Wilson diesel generators (England) in the Primorsky region. The company is interested in receiving proposals from U.S. manufacturers of diesel generators, boilers, and heating systems fired by waste motor oils.
Post remark: several companies were also interested in finding a U.S. supplier of boilers and heating equipment.
31. U.S. department of commerce programs
U.S. Commercial Service
32 Pushkinskaya street
Vladivostok, Russia 690078
Tel: (7-4232) 300-093
Fax: (7-4232) 300-092
E-mail: csvlad@online.ru
Contact: Richard Steffens, principal commercial officer
American business center
32 Kommunistichensky Ave, floor 5
Yuzhno-Sakhalinsk, Russia
Tel/fax: (7-4242) 727-124, 727-125
Int'l tel: (509) 951-545
Int'l fax: (509) 951-540
E-mail: abc@abc.sakhalin.su
American Business Center
69 Turgeneva street
Khabarovsk, Russia
Tel: (7-4212) 236-197, 236-067
Fax: (7-4212) 235-003
Int'l tel: (509) 014-9059
Int'l fax: (509) 014-9041
E-mail: abc@abc.khabarovsk.su
Contact: Jon Weiss, manager
This report prepared by BISNIS Vladivostok representative Svetlana Kuzmichenko. Approving officer: Rich Steffens, principal commercial officer, U.S. Consulate - Vladivostok.
International copyright, U.S. & Foreign Commercial Service and U.S. Department of State, 1998. All rights reserved outside of the United States.