"Electronmash": response to modern challenges

The company "Elektronmash" has been operating in the market for 20 years. This is quite a mature age иy Russian standards. During this time, the enterprise has produced thousands of low-voltage switchgears "Assol," thousands of medium voltage switchgears "Eltema" 6-10 kV and "Eltema +" 35 kV, and hundreds of substations. Despite crises and the pandemic, "Elektronmash" continues to develop and move forward, seeing not only challenges but also opportunities for growth.

Top managers of  "Elektronmash" JSC shared insights on how to correctly prioritize and address complex tasks as they arise in order to move forward and develop.

Electrical Engineering Industry: Challenges and Opportunities. 

Valery Nazarov, General Director of "Elektronmash":

— All market participants express concerns about the pandemic situation and the related crisis, with declines across all markets. Nevertheless, all systemic manufacturers of electrical equipment are currently "loaded." The question is: "How long will this inertia last, and what will happen next?" Companies with a broader product range and those working with clients from different sectors are in a more stable position.

The pandemic has had a significant negative impact on several industries, leading to the cancellation of investment programs in sectors such as oil and gas, coal, metallurgy, and energy. Therefore, manufacturers with a significant share of clients from affected industries face substantial risks of significant production declines.

Industries such as pharmaceuticals, gold mining, partially mining and metallurgy, chemicals, and fertilizer production have even benefited from this situation. Our company, understanding these risks, has worked with a wide range of clients from various sectors, which is why we are "loaded" and look optimistically at the coming years. There is another trend: equipment customers are trying to shift the burden of financing onto equipment manufacturers and are increasingly securing contracts with bank guarantees.

Many large clients now set supply conditions for even major projects without prepayment and with significant post-payment terms (100-200 days). Manufacturers of electrical equipment are forced to freeze their working capital, take loans, and open credit lines backed by bank guarantees.

These processes slow down the turnover of financial resources taking into account the quite long manufacturing and post-payment terms. It will lead to systemic changes in our market. 

Small companies, companieswith weak financial capabilities and companies with expensive credit lines will find it very challenging. A significant limiting factor for production capabilities is not only production capacity and the number of employees but also the maximum volume of financial resources that a company can mobilize. Judging by recent large tenders, clients are taking this into account, preferring larger manufacturing companies despite higher prices.

Moreover, the share of all these financial instruments in production costs has increased. If these expenses could previously be overlooked, those who do not account for these rising costs are in for tough times.

I also consider the increasing number of projects with foreign EPC contractors (engineering, procurement, and construction), such as Linde, Tecnimont, Technip, Kinetics, Saipem, Dealim, Petrofac, etc., to be an interesting trend. Apparently, sanctions risks, political and moral aspirations for localization, and the emergence of worthy manufacturers in Russia have prompted large domestic companies to specify in contracts for the supply of electrical equipment that it should be produced in Russia.

Our company has participated in several such projects. The attitude towards the manufacturer and excessive requirements sometimes turned out to be extreme. Due to no fault of our own, we had to redo the same switchgear multiple times. Contracts are structured in such a way that the equipment manufacturer must accommodate changes as many times as the EPC contractor requires throughout the contract execution.

All these changes need to be documented in two or three languages. The execution of contracts often stretches out, and instead of the expected standard timeframe, it increases by one or two years without an increase in cost. Labor costs per unit of product turned out to be 1.5–2 times higher than for standard orders.

A downside is the inflexible, sometimes "colonial" attitude of foreign EPC contractors not only towards Russian manufacturers but even towards clients. During project execution, seeing our technical competence and results-oriented work, the attitude towards us changed, and we established good working relationships with several Italian, German, and Korean firms. With some EPC contractors, if we are to work together again, it will only be under conditions of significant price increases.

Nevertheless, I find this experience interesting for our companies. We have implemented several interesting processes in our production.

Will Russian electrical equipment manufacturers and foreign manufacturers have equal conditions?

Andrey Litvinenko, Commercial Director of "Elektronmash":

— The goal of import substitution was announced by our government quite some time ago, and in many sectors, effective protectionist measures have been adopted, ranging from strict bans on the import of foreign products to high tariffs on the import of finished goods.

In relation to manufacturers of electrical products, reverse norms still apply. All finished electrical products (LVS, MVS, etc.) produced in Europe or Asia are imported into Russia with zero customs duty. Meanwhile, the components on which we base our equivalent products, which match in quality and functionality, are subject to tariffs ranging from 7% to 15%.

In addition to the duty-free importation into Russia, several EU countries and China offer incentives to their manufacturers when exporting finished products.

Moreover, it is no secret that the technology for complex productions in Russia is still built by foreign EPC contractors, who often prefer manufacturers from their own countries.

The latest "cherry on top" is the payment deferral. General Director  of "Elektronmash" V. Nazarov raised the issue that the end client is currently trying to postpone payments as much as possible to mitigate risks and reduce credit payments. This trend was initiated by foreign manufacturers, as their borrowing rates are often significantly lower than the harsh banking realities in Russia.

There have been numerous projects where we lost out to suppliers of finished electrical products from abroad because they enjoy all the aforementioned preferences in our country. This has occurred in tenders for state-owned companies and in strategic sectors.

If we look at open information sources from Customs authorities, we can see that the value of electrical equipment imported into Russia is comparable to the total value of all equipment produced in Russia.

Honestly, it begs the conclusion that the Russian electrical equipment manufacturer exists not because of support, but in spite of it.

For several years, we have been trying to convey this strange "support" for Russian electrical equipment manufacturers to various branches of government, attempting to change this situation. To gather more complete and reliable information, we reached out to various Russian electrical equipment manufacturers for statistical data. I would like to thank our corporate community for their support. Responding to our call, several systemic companies, such as "ChEAZ", "SVEL," "Tavrida", "Samara Electrical Panel", "ChETA", "Krus-Zapad", "ServiceMontageIntegration", and many others, provided us with their production volume statistics and capabilities.

With the support of the Ministry of Industry and Trade, for which we are very grateful to D. Klyapovsky and B. Markovtsov, we were able to present a detailed analytical proposal to the Ministry of Economic Development of the Russian Federation. Their support gave us strength during repeated iterative meetings in the government.

The collected information clearly shows that the production capacity of Russian manufacturers could fully cover the volume of finished electrical equipment imported into the country. This would also enhance security in light of new sanctions, as remote control could be used to "turn off" any industrial facility. For example, remote shutdown of Iran's nuclear facilities.

It turns out that with the money of our Russian clients, the economies of European and Asian countries are being developed. Although there are all conditions to keep this money within the country and develop our own production. This issue extends beyond just the electrical engineering sector.

Any production generates a multiplicative effect. The electrical equipment industry consumes a significant amount of steel, non-ferrous metals, plastics, polymers, etc. This represents substantial revenue for many sectors of Russian industry and transport.

The corporate community of domestic electrical equipment manufacturers, with the participation of "EleCtronmash," hopes to achieve the introduction of customs duties on finished electrical equipment that are comparable to those on components, thanks to the efforts of the Ministry of Economic Development and the Ministry of Industry and Trade. Note that we do not seek to impose higher duties on finished products than on components, as is done in most other industries (for example, in automotive manufacturing). In our understanding, this would restore common sense to the electrical equipment manufacturing sector in our country.

There is already some positive experience from the analytics we prepared to justify the introduction of customs duties. Understanding and expert insight on this issue helped us secure contracts with "Siemens Gamesa" for the localization of converters used in wind turbines for wind farms in Azov and Murmansk.

As new sanctions against Russia are imposed, the import of modern technologies and innovative equipment is being restricted. The energy sector is one of the most innovative industries that all officials and government bodies advocate for. It's high time to move from words to action. Meanwhile, we will continue to work hard and hope that the Ministry of Economic Development will bring this noble and correct initiative to a logical conclusion, at least partially leveling the playing field for Russian and foreign manufacturers of electrical equipment. 

The Manufacturer and the Client Transition to Virtual Communication.

Evgeny Sharafutdinov, Chief Engineer for Project Organizations at "Elektronmash":

— Our enterprise emerged during challenging times and has been shaping new directions in the electric power industry for over 20 years, rather than simply following others. As practice shows, the solutions we develop find successful applications in industrial enterprises, and external economic and political factors only accelerate the adoption of new technologies.

Long before the sanctions, we focused on producing goods using domestically sourced materials. Yes, it was initially challenging. We had to conduct strict supplier selections, independent material examinations, and provide our recommendations on technologies. In the end, when imports largely closed off, we already had a well-prepared and tested path for producing goods for the domestic market. The demand for such products grows every year.

Several years ago, at our technical council, we decided to develop alternative sources of electricity, despite the fact that this market was virtually undeveloped in Russia. Today, we already have several implemented projects with solar power plants and guaranteed power supply systems.

We also addressed the existing problem of facilities with constantly changing qualified personnel and the inaccessibility of energy installations due to remoteness, weather conditions, etc. We developed technical solutions that allow us not only to remotely monitor the viability of our electrical systems but also to manage them remotely, visually controlling all switching operations without the presence of personnel at the facilities.

We learned not only to collect data on accidents but also to predict them based on temperature regimes, switching cycles, and the actual condition of the equipment. Such automation systems have allowed us to step up our integration, including with network companies.

Then the pandemic hit. Technologies and developments that allow tasks to be solved remotely and without personal contact became in demand. Our company had already been conducting many of its processes and document flow through automated programs before the pandemic, so we quickly adapted and transitioned to remote work. The requirements for our products also changed. Everyone remembered the possibility of remote monitoring of equipment, remote management of technological switches, and preventive measures to avoid accidents. Those who had taken care of this in advance managed to keep their enterprises afloat and retain their personnel.

We also recalled our operational documentation not in paper form but in electronic archives, which can be accessed and viewed directly on smartphones via a standard QR code located on the equipment we produce. Naturally, this is done using a provided access code. Security comes first.

Safety is also crucial regarding the work of maintenance personnel. We developed training programs for each type of equipment produced by the company.

With the development of VR technologies, we began supplying not only reliable equipment but also virtual training systems — simulators. In virtual reality, one can undergo a training course on the operation and repair of the equipment supplied to the facility. Moreover, it is possible to recreate a digital visual clone of the very equipment, the substation that the client received in reality, so that everything in VR happens just as it does in real life.

Training on the virtual simulator allows personnel to automate their actions during equipment switching or repairs. In addition to training, personnel undergo virtual testing to obtain permits for work on the equipment. Such VR systems are successfully implemented by energy companies like "Sibur", "Gazprom Neft", and "SUEK".

The second application of virtual reality in the energy sector is the creation of 3D models of objects during the projecting phase. This approach allows for studying the equipment at full scale, assessing the spatial arrangement of equipment, checking the convenience of maintenance, and identifying blind spots. In other words, it allows us to see the future at the design stage.

Currently, our enterprise has implemented a system for virtual visits (3D tour) so that client specialists do not have to sit in airports or train stations, preserving not only their time for business trips to study the technical details of our production but also their health.