MOSCOW, June 8. /TASS/. On May 12, Deputy Minister for Development of the Far East and Arctic Alexander Krutikov said small and medium-sized businesses (SMB) in the Arctic zone find it hard to compete with entrepreneurs from Russia’s other regions due to limited demand in the local market, and high production costs of local products and services. This is why the ministry has been working on measures to involve small and medium businesses in state procurement. Local officials and business representatives told TASS why competition for public contracts with neighbors from other territories is often unlucrative for the North’s businesses.
Unequal competition
The Business Russia NGO’s representative Viktor Zubarev says that state orders sphere north of the Polar Circle has certain specific features: requirements are high, while quality is above all. Thus, the range of potential contractors cannot be compared with the competition "on the mainland."
"The biggest problem is the unequal competition due to expensive costs in the North," Tatiana Ulanova, a representative of another NGO for small and medium businesses, Opora Russia, told TASS.
The Yamalo-Nenets government says it would be good if Arctic businesses could enter the public procurement, where competitive bidding is not applicable. "We have been informing the business community about state and municipal orders, which either do not require competition or lack competitive supply," the governmental press service said. "By taking such orders, the businesses could access the market of state projects."
High "entrance fee"
Experts told TASS that the platforms to bid for state orders in the Arctic regions had changed over the recent years, becoming clearer for the bidders. However, the participation fee is sometimes too high for SMBs given the relatively cheap contract cost. If the federal authorities could cancel the obligatory fees, businesses in the North would be more interested in state orders, the Arctic zone’s officials say.
"We suggest cancelling the fee, which electronic platforms charge small and medium-sized businesses," Head of Chukotka's Department of Finance, Economy and Property Relations Alesya Kalinova said. "Presently, the fee makes 1% of the contract’s initial minimal cost."
Federal and regional incentives
According to Viktor Zubarev, in bidding for state orders, small and medium-sized businesses expect lower competition with non-Arctic regions, along with complex support from the federal center.
"As for state incentives, clearly the state must lead the Arctic’s new development stage, while local businesses should enjoy bigger support for their development, since their costs and risks in the North are much higher than elsewhere," he said. "A few regions have been working on special business regimes, but anyway the main framework should be set by the federal center. Here, most important would be to agree on incentives, on which the federal support for Arctic small and medium businesses in bidding for state contracts will depend."
Now that the country does not have a federal instrument to support the Northern businesses, the regions offer their own incentives. The Krasnoyarsk Region invites small and medium businesses to a special online platform, opened under the Yenisei Siberia investment project for the Krasnoyarsk Region, Khakassiya and Tuva.
The Krasnoyarsk Region's Ministry of Economy told TASS that the platform localizes orders from big investors in the region. "The Platform’s key elements are: the registrar of reliable supplies and contractors, which incorporates small and medium companies in the Krasnoyarsk Region, Khakassiya and Tuva, as well as an aggregator for participants in the Yenisei Siberia project, which consolidates into one resource the bids and orders, posted on other platforms," the ministry said.
The Yamalo-Nenets Region has cut the prepayment to 50% under deals in construction, reconstruction and repairing (earlier, the prepayment was 30%). The regional authorities recommended that all clients reschedule to earlier dates the state purchases from small and medium businesses, due in the second half of 2020. In addition to that, maximum purchases and contracts due in 2021 are to be inked in the third quarter of 2020. With these measures, the regional authorities say, local businesses will distribute effectively their efforts and resources at the early planning stage.
Chukotka also offers certain incentives. "First of all, as regards the purchases whose initial (maximum) cost of a contract is more than 1 million rubles ($14,600) the minimal guaranteed fee is 0.5%," Chukotka’s head of the finance authority Alesya Kalinova told TASS. "Secondly, in compliance with changes to Article 112 of Federal Law 44, which came into force on April 1, 2020, businesses are exempt from binding guarantee obligations," she added.