WATER TREATMENT EQUIPMENT IN NORTHWEST RUSSIA

JANUARY 2000

AUTHOR: MARINA KAMAYEVA, COMMERCIAL ASSISTANT, US & FOREIGN COMMERCIAL SERVICE (FCS), US CONSULATE ST. PETERSBURG. APPROVING OFFICER: MICHAEL RICHARDSON, PRINCIPAL COMMERCIAL OFFICER, US & FOREIGN COMMERCIAL SERVICE (FCS), US CONSULATE ST. PETERSBURG.

GOLD KEY SERVICE: U.S. companies interested in gaining access to prospective business partners in St. Petersburg and NW Russia are encouraged to utilize our very effective “Gold Key Service.” Experienced Commercial Specialists identify opportunities, arrange business appointments with pre-qualified Russian agents and distributors, and accompany you to the meetings. The current charge for our Gold Key Service is $500 for 4-6 meetings (1-2 days of appointments), and $150 per additional day of appointments (maximum 4 appointments per day). Major credit cards accepted. Driver and professional interpreter services can be arranged for an additional fee. We require sufficient company literature at least three weeks prior to the desired appointment dates.

WEBSITES & OTHER SERVICES: The Department of Commerce’s US&FCS office in St. Petersburg offers a range of services to U.S. companies interested in doing business in NW Russia. In addition to traditional FCS services (such as the Agent Distributor Search), in our offices at Nevsky Prospect 25 we provide a conference room for up to 20, free computer and local telephone line use, and we can provide fee-based translation, business card and color printing services upon request. For more information, visit us at: “www.usconsulate.spb.ru/fcs.” American exporters and investors may wish to visit the Commerce Department’s BISNIS website site at: “www.bisnis.doc.gov”

SUMMARY

In 1994, a report on drinking water in the Russian Federation estimated that half of the Russian population drinks poor quality water, and stated that improved purification plants were urgently required. Although the Russian government has launched a number of water improvement programs since that time, water quality is still an outstanding issue in many cities. Currently, there are still reports of increasingly acute maintenance and operating problems at existing purification facilities. Both the Russian government and international organizations recognize this issue as a high priority action. This need represents a potential market for imported wastewater equipment and effective imported sewage systems.

The major environmental issues facing Northwest Russia are: pollution of air and water basins and regional lands; storage and unsatisfactory treatment of wastes; and the ecological condition of city parks and green space. The deterioration of existing ecological conditions creates a number of potential environmental dangers, including to human health. These dangers are caused by sources both within the cities of Northwest Russia and from agriculture oriented rural areas. St. Petersburg, the region's largest city, is located at the outlet of the largest ecological system in Northwest Russia, which comprises the water basins of Lake Ladoga, the Neva River and the Gulf of Finland. Consequently, all the sewage water from this area passes through St. Petersburg's sewage system. The surrounding Leningrad Oblast (region) and other oblasts also have an important impact on environmental conditions in the area.

Until 1994-1995, the post-Soviet industrial collapse had compelled Russian government agencies and enterprises to assign water pollution control expenditures a low priority. However, as a result of recent pressure from international environmental protection organizations and the need to recognize international water quality standards, as well as more active involvement on the part of multilateral financing agencies in Russian environmental problems, the total market for water treatment equipment is expected to grow by about 15 percent during the next 5 years. Furthermore, the growth rate of imported equipment will exceed the growth rate of domestic production since water treatment financing comes primarily from foreign sources.

The volume of domestic production of water treatment equipment in general is lagging behind market demand; moreover, Russian-manufactured equipment is quite inferior in quality to Western equipment and the range of products produced lacks a number of items required for thorough water treatment. Research centers are working on the development of their own treatment technologies, but in most cases these organizations lack funding to implement their technologies and are open for cooperation with Western partners on joint projects. As a result, American technology suppliers should consider Russian research institutes as valuable local partners, rather than as competitors.

European companies, primarily from Germany, Sweden, France, Great Britain, and Finland (with clear domination by Finnish, Swedish, and Danish firms in Northwest Russia), have been closely following the situation in the Russian market and have moved quickly to fill the gap between the evident demand for quality water treatment equipment and its availability. These firms are serious competitors to U.S. companies that have not yet been clearly active in Northwest Russia and whose technologies are not well known in the local market. Another factor making European firms very competitive is that they are well acquainted with the various environmental programs of their home governments and are able to bring financing to their Russian customers.

It is important to note that financing is and will be, for at least several years, the major competitive factor. Foreign direct investments and international financial institutions will primarily drive sales of U.S. water treatment equipment and services, and U.S. suppliers of water treatment technologies should be aware of environmental-related programs managed by the World Bank, the EBRD, and other financial organizations. Additionally, after Russia's 1998 financial crisis, a number of domestic industrial companies have recovered and are now able to up-grade their production facilities, including the environmental protection aspects of those facilities.

Keeping a presence in the local market in important, and appointing local representatives or establishing strong partnerships with local companies is a good way to gain significant assistance in building relations with end-users and decision-makers for water treatment tenders.

MAJOR TRENDS AND HIGHLIGHTS

Northwest Russia is a large ecological system that comprises the water basins of Lake Ladoga, the Gulf of Finland, and the Baltic Sea, and has direct access to the White Sea in the North. This large industrial region of Russia borders several European countries, such as Finland, Norway, Estonia, and Poland, and environmental conditions in Northwest Russia have a direct impact on international water basins, the most important of which is the Baltic Sea. All the sewage waters from this area's major industrial cities, such as St. Petersburg, Murmansk, Kaliningrad, Cherepovets, Petrozavodsk, and Archangelsk, pass through their respective municipal sewage systems and affect the environments in neighboring countries. Consequently, water pollution in Northwest Russia is subject to pressure from international environmental protection organizations. Local governments realize the need to recognize international water quality standards and to assign water pollution control expenditures a higher priority than they did at the beginning of the 1990's.

The biological specifics of the Baltic Sea make its ecological system very sensitive to the growing level of pollution. Polluting substances collect in the Baltic Sea due to its slow water exchange with the ocean (about 25–40 years). Pollution causes an increase in the sea’s water temperature and, consequently, to the excessive development of microorganisms, including toxic blue-and-green seaweed. This has created a relatively recent trend on the part of municipalities to look for biological technologies to remove phosphorus and nitrogen from sewage sludge, which results in these alga blooms.

Water purification systems used in major cities and towns of Northwest Russia are substandard, and bacteria are routinely present in drinking water. On the whole, only about 30 percent of sewage water is purified by municipal facilities. It is generally recognized that next to none of the existing water treatment facilities in the area meet international requirements for allowed concentrations of nitrogen and phosphorus in purified water. As an example, the small town Ivangorod located on the border with Estonia attracted international attention during the past two years after town authorities, due to a lack of funds, stopped buying sewage treatment services from the water purification plant located in Estonia. 100 percent of Ivangorod's wastewater is currently dumped in the Narva River untreated.

The sale of municipal water treatment equipment is, to a large degree, determined by available financing. The city authorities continually work with Russia's federal government and with national and international financial organizations of other countries to obtain access to foreign sources of crediting and finance. The success of many European environmental companies that have recently distributed their technologies in Northwest Russia is primarily explained by their ability to provide credit lines along with equipment. Those U.S. companies that are prepared to offer financing on a relatively small project may easily count on future orders in the region.

The city of St. Petersburg, the largest city in Northwest Russia and the second largest city in the Russian Federation, is an exception from the general lack of development of municipal water treatment facilities. The St. Petersburg water company Vodokanal-St. Petersburg is considered to be one of the best-managed municipal water companies in Russia. Due to its continuous contacts with foreign suppliers and funds, personnel training, and financial independence from the city budget, Vodokanal has implemented more environmental programs in the past three years than any other municipal water company and is now the major buyer of water treatment equipment in the region. According to Vodokanal experts, the quality of drinking water in St. Petersburg has considerably improved over the past several years. However, the majority of St. Petersburg’s population still does not drink tap water, since it still contains bacteria and has a high mineral content. Local water, which is either boiled or filtered before consumption, is especially dangerous for non-residents.

The city of St. Petersburg still faces numerous environmental problems. Currently, only 70 percent of sewage water in St. Petersburg is purified, while the rest, over 1 million of cubic meters per day, goes directly to the Gulf of Finland. According to the Helsinki Conference resolutions that were adopted by the Baltic Sea countries, it is planned to restore the Baltic Sea environments to its 1940 level by 2008.

One of the most problematic regions in Northwest Russia in terms of water treatment is the Archangelsk Region. Despite the decrease in production volumes of the two major pulp and paper plants, the water quality in local rivers has deteriorated; in two years, the content of organic substances in the water has doubled. The reasons were the discharge of wastewater during the 1997 emergency close-up of the water treatment facilities and poor performance of the local biological treatment plant. The sea ports and the Navy bases of Archangelsk and Severodvinsk continue to pollute the river of Northern Dvina, the major source of drinking water for those cities, where tap water is characterized by a high level of bacteria. There is a serious problem with water supply in the city of Kotlas due to continuous oil spills into the Limenda River. According to the 1997 research on White Sea pollution, the primary source of pollution was the flow from the rivers carrying a high amount of wastewater from the pulp and paper industry, energy companies, and sea and river vessels. In 1997, together with the river flow, the Dvina Gulf of the White Sea received 4,000 tons of oil products and over 100 tons of phenols.

The 1998 financial crisis in Russia led to considerable changes in the economic trends of Northwest Russia's economies and industries. The most noticeable impacts of the local currency devaluation in 1998 were the fast growth of local industries (due to decreased imports) and the suspension of most foreign and local investments into local industries. With no investments, local manufacturers were unable to implement any environmental upgrades to their facilities. However, by the end of 1999, the investment climate had warmed up, due to both political (elections to the Federal Duma) and economic (stable development of those local companies that had survived after the crisis) reasons. Local governmental and business representatives in all regions in Northwest Russia now expect that after the Presidential Elections in March 2000, investments in industrial business will grow considerably. New foreign investment and the increased buying power of local industries should result in strong opportunities for suppliers of industrial wastewater treatment equipment to implement their technologies at both newly constructed and upgraded facilities.

It is estimated that the best prospects for U.S. water treatment equipment in Northwest Russia in the next five years will be:

in the private industrial sector, in particular, in export-oriented and other fast growing industries (metal, oil and gas, pulp and paper, pharmaceuticals, automotive, consumer goods);

in municipal and governmental water improvement projects supported by international financing.

PROJECTS IN ST. PETERSBURG

In 1999, the major source of finance for environmental pilot projects in St. Petersburg continued to be the EU program TACIS. In 1998-99, TACIS's total project financing in the city was Euro 50 million, 21 percent of which was used for environmental projects (Euro 10.5 million). One of the most important projects was the management of hazardous wastes in Krasny Bor (Leningrad Region). Another project was the up-grade of the energy and wastewater systems of the Izhora Plant, one of the largest metallurgical companies in St. Petersburg. The largest project completed last year in St. Petersburg was the reconstruction of sewage pipelines in the center of the city. The project took 20 months and cost USD 35 million.

Vodokanal's plans include similar projects in other city districts in the future. In 2000, TACIS-funded environmental projects include reconstruction of the southwestern water purification facilities in St. Petersburg (about USD 2 million), and technical assistance for the development of energy-saving and environmental technologies (USD 10 million).

Smaller projects currently under development include installation of water treatment equipment in Pushkin and Petrodvorets, suburbs of St. Petersburg; restoration of sewage systems at the Baltiysky Plant; and construction of water treatment facilities in the new residential districts assigned to former military officers.

To comply with the resolutions of the Helsinki Conference, Vodokanal-St. Petersburg has a program to construct new sewage collectors and water purification facilities for full treatment of wastewater, which is scheduled for completion by 2005.

In July 1999, the European Bank for Reconstruction and Development (EBRD) and Vodokanal of St. Petersburg signed a loan agreement for DM 35 million to implement a program to improve St. Petersburg's water sector. The first tranche of this loan has already been transferred to Vodokanal.

A good source of information on on-going and scheduled projects in St. Petersburg is the Environmental Information Center that was established in 1999 with the support of the Finnish and Dutch environmental agencies (see contact information).

PROJECTS IN OTHER REGIONS

Murmansk Region:

- TACIS is funding a project to establish an environmental monitoring system on the Paz River;

- A five-year program "Nature" received USD 1 million from Norway’s Ministry of Industry and Power Engineering. On the Russian side, it is funded by the Murmansk Regional Environmental Fund. The program includes implementation of environmentally friendly technologies at industrial enterprises (e.g., Monchegorsk Nickel Plant) in the northern parts of the Murmansk and Archangelsk regions; and

- "Improvement of Drinking Water Quality in the Northern Regions of Russia". The feasibility study for this project was completed by Berlinghaug (Norway). Currently, the Murmansk Administration is seeking investors for this project, which may be partially funded by Norway’s Ministry of Environmental Protection.

Archangelsk Region:

- One of the priority governmental programs is the Program for the Development of Water Supply and Sewage Systems in the Region's Cities;

- The local government is working on the program "Environmental Safety of the Archangelsk Region" to be included as a sub-program of the federal program "Environmental Safety of Russia"; - As a part of the Federal Program "Drinking Water Supply to the Russian Cities", there is a project for the construction of a water supply pipeline from the Permilovsk water wells to Archangelsk, Novodvinsk, and Severodvinsk; and

- Several separate projects are scheduled to up-grade wastewater treatment facilities at the region's major pulp and paper mills, Kotlas Pulp and Paper Mill and Archangelsk Pulp and Paper Mill.

Vologda Region:

Water improvement projects are related to the development of the region's major industries and constructing or expanding production facilities at such large companies as:

- Azot (manufacturing of carbamide and other fertilizers);

- Sokol Pulp and Paper Mill;

- VologdaBiotech (organic fertilizers); and

- RuspromService (gas stations and car washing facilities).

As an example of the steps successful domestic industries are taking to solve water-related problems, Severstal, the major steel mill located in Cherepovets, recently purchased modern closed-cycle technology for industrial wastewater treatment, which considerably improved the general environment in the city and in the Sheksna River.

COMPETITIVE ANALYSIS

The strongest competitors to American exporters of water treatment equipment are Scandinavian and other European firms, which, in marketing their products, rely on the considerable support of their home governments. These companies have become acquainted with European environmental programs and successfully use them to finance sales of their technologies to Russian end-users. Domestic manufacturers compete with foreign importers primarily with low prices, not with quality products. The three major keys to success in this market are: a continuous presence, collaboration with domestic partners, and availability of financing sources.

Domestic Production:

Environmental equipment produced in Russia is inferior to that manufactured in the United States and Europe and does not generally meet Western standards. With the emergence of a Russian environmental services industry, the quality of local equipment is improving. On the whole, environmental equipment produced locally, without any collaboration with foreign firms, will not compete with imported equipment on quality for at least another three years. However, for Russian end-users of such equipment, the major competitive factor is pricing, and Russian-made equipment has a significant cost advantage over western technologies.

Domestic production of water treatment equipment includes the following products: environmental monitoring devices; wastewater treatment installations; water pollution control equipment; ozonizers; aerators; filters for drinking water and wastewater treatment; and drinking water pretreatment equipment.

A list of the major Russian producers of water treatment equipment includes such companies as: Lenvodopribor (St. Petersburg); Vodokanal St. Petersburg; LenNIIChimmash (St. Petersburg); MosVodokanalproject (Moscow); KurganChimmash (Kurgan); Pecom Ecology (Moscow); Tyumengastechnology (Tyumen); Water-Machine Equipment Plant (Voronezh); Noosphere (Moscow); Biovit (Yekaterinburg); NIIOSugol (Perm); and others (see contact list).

Imports:

German firms lead the total import market in Russia with a 30 percent share. German companies export all types of environmental equipment, including water pollution controls. The list of German water treatment companies includes Siemens, BASF, Bekker Verfahrenstechnik, Klockner, Ravema-Industrianlagen, KHD Humbolt Wedag, and others. The success of German exporters in penetrating the Russian market is a result of their aggressive pricing and on-the-ground presence strategy. About 15 percent of the market in Russia is attributed to the NIS republics, primarily to Ukraine, while Scandinavian countries (Finland, Sweden) hold about 10 percent.

However, in Northwest Russia, market shares in water treatment equipment are divided differently. In this region, the Finnish, Danish, and German firms dominate the water treatment sector. Northwest Russia's geographic proximity to Scandinavia (Leningrad Oblast and Karelia border Finland, Murmansk borders Norway), with direct water connections to the Gulf of Finland, the Baltic Sea, and the Arctic region, environmental issues are of mutual importance and of mutual concern to the governments of Russia and the bordering countries. Home-government support is a factor that continues to help keep Scandinavian companies highly competitive. Many European countries have adopted a strategy of tying environmental funding to the requirement that their country's environmental equipment or services be purchased with the proceeds of any loans from that country.

For example, the Finnish national budget annually includes around USD 6-8 million in appropriations to support environmental projects in Eastern Europe. The Ministry of Environment of Finland has also allocated funds to international financial institutions (the World Bank, the EBRD and the Northern Investment Bank (NIB)) for environmental projects in the Baltic Sea region.

Many European competitors of U.S. environmental firms participate in such EU-funded programs as TACIS. According to the TACIS Environmental Support Facility, the TACIS program for 1996-99 spent about 15 million ECU for environmental projects. The managers of the program emphasize continuing efforts to attract investments to St. Petersburg and Northwest Russia.

The total amount of technical assistance funds to St. Petersburg allocated by Western European countries in 1999 was approximately the same as in the previous years: TACIS (European Union) – USD 52 million; Technical Assistance of Finland – USD 12.5 million; Transform Program (Germany) – USD 5.2 million; PSO (Netherlands) – USD 1.9 million; the Danish Technical Assistance Program – USD 3.7 million; Sweden – USD 5 million; and Great Britain – USD 10 million. The percentage of these funds spent on environmental issues varies from country to country but, on the average, it is between 20 and 30 percent.

Following are some examples of the activities of European governments in St. Petersburg and the Leningrad region in relation to the water treatment industry, which were reported in 1999:

- Swedish Development Agency: a grant to study the Leningrad Region’s sewage system;

- Ministry of Environment of Finland: training programs for St. Petersburg experts, including Vodokanal specialists; research together with 10 research centers in St. Petersburg to work to find

practical measures to improve the environmental situation. For the past 5 years, the Finnish Government granted FIM 67 million for environmental projects in St. Petersburg.

- British Know-How Fund: cooperation with Vodokanal in the framework of an EBRD project, including a one-year study involving Sweden, Finland, Denmark, France, and Germany; a co-financed project with Finland for tackling wastewater problems;

- Denmark: a wastewater treatment system in small villages; reconstruction of sewage pipes in the area of the Hermitage's buildings; a pilot project for water supply and sewage system in

Petrodvorets (a suburb); restoration of water pipelines in the city center; water purification facilities of the sea ports in the eastern part of the Baltic Sea; wastewater treatment facilities at the Baltiyski Plant. There are currently 14 environmental projects funded by the Danish Agency of Environmental Protection at a total cost of DC 41 million;

- Norway: the Ministry of Environmental Protection of Norway allocated NOK 14 million for an environmental training program for industrial engineers from Murmansk, Archangelsk, and Karelia.

Unfortunately, the U.S. Agency for International Development has closed its office in St. Petersburg, and USAID activities in Moscow have recently been very limited in terms of environmental project financing. However, U.S. companies can also participate in international projects that engage various foreign suppliers and means of funding. The Trade and Development Agency (TDA) is financing feasibility studies conducted by U.S. consultants and also helps companies to work with the World Bank, Export-Import Bank and other financial institutions. U.S. companies that have received TDA grants have successfully competed with other foreign participants in a number of environment-related tenders. Also, the Special American Business Internship Training Program (SABIT) offers grants to U.S. companies that are willing to host specialists from the Newly Independent States and thus to develop close business links with the firms they represent. In addition to individual internship programs, SABIT has scheduled several group programs in the environmental sector for the year 2000, including:

- Environmental Technologies in Mining (January – February, 2000);

- Environmental Technologies in Pulp and Paper Industry (April – May, 2000); and

- Air Pollution Area (June – July, 2000).

The four keys to the success of any competitive strategy are:

- Pricing: With small budgets for environmental projects, Russian municipalities and enterprises will choose a more cost-effective proposal.

- Credit terms: Bringing financing together with technology can in many cases be decisive in the competition; when offering a technology, a U.S. supplier or consultant should also propose means of involving financial institutions to finance a project.

- Partnership with local companies: Collaboration with local partners who can lobby for a project.

- Representation: It is of great importance to continuously promote services and technologies in the targeted area and to become well known to the local environment-related agencies.

END-USER ANALYSIS

The two basic groups of end-users of water treatment equipment are government municipalities and private enterprises.

Until the beginning of the 1990s, orders for environmental equipment in Russia were primarily government-initiated, and up to 2 percent of GNP was allocated to environmental protection measures and equipment purchases. Roughly 80 percent of this amount was for water control facilities, including a large portion for water-recirculation systems. Now the responsibility for such environmental infrastructure projects as drinking water facilities, wastewater treatment plants, and waste management facilities lies with the programs and budgets of municipalities.

In most cities in Northwest Russia, water supply and sewage systems are operated and maintained by municipal companies called Vodokanals ("water+sewage"), although in some smaller towns sewage facilities can be run by a large industrial entity, which is usually responsible for also supplying power and heating to the area. Vodokanals are normally budgeted by the city. The St. Petersburg's Vodokanal, as well as those in other large cities in Northwest Russia such as Murmansk, Kalinigrad, and Petrazavodsk, is a self-financed organization, although 100 percent owned by the city of St. Petersburg. It is very unlikely that Vodokanals will be privatized in the near future and these municipal companies will continue to hold monopolies on water supply and sewage in their respective areas.

Private industrial companies are potential customers for wastewater treatment equipment to be installed at their own facilities.

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Municipal Vodokanals

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Vodokanals have three customer groups who use water supply and sewage pipelines: 1. municipal population; 2. government-owned agencies (schools, hospitals, military units, etc.); and 3. industries. The tariffs for tap water and sewage for the first two groups are regulated and restricted by the federal and municipal governments. Although the costs of all communal services for the population have been growing over the past five years, the government cannot immediately and drastically increase the tariffs for these groups for "social reasons", which means that the highest payment burden for these services rests on industrial enterprises. In 1997-98, the shares of different consumers of Vodokanals' services were estimated as follows (in percent):

Population Government Agencies Industries

Water supply 46.7 14.3 39.0

Sewage 44.1 12.7 43.2

Smaller towns in the region have their own wastewater treatment facilities, which will be scheduled for upgrading in the near future. These facilities are run by the local Vodokanals in most towns, except for those cities that have major industrial enterprises that operate the water treatment facilities. Examples include Boksitogorsk, Volkhov, Kirishi, and Slantsy in the Leningrad Oblast, Cherepovets in the Vologda Oblast, Monchegorsk in the Murmansk Oblast, etc. If we take the Leningrad Oblast, a large region that borders the Baltic Sea, as an example, the oblast's sewage goes through 19 sewage facilities, 9 of which are reported to be inefficient since the volume of sewage waters exceeds their capacities. In total, there are 397 wastewater treatment facilities in the Leningrad Oblast with the total design capacity of 629 million m3 annually. According to official statistics, only 390 million m3 are actually sufficiently treated before being discharged into water reservoirs. In fact, since official data is not reliable, the amount of wastewater that needs to be purified could be much higher.

Vodokanal of St. Petersburg is one of the best-managed municipal water companies in the Russian Federation. It was the first water company that received a direct loan from EBRD (not through the city administration or through the federal agencies), about USD 150 million that have been used for the improvement of the water supply systems in St. Petersburg. In 1999, EBRD approved another DM 35 million loan to Vodokanal-St. Petersburg. Although the company is owned by the city of St. Petersburg, Vodokanal does not depend on the city budget. In some cases, it may act as a dealer for technology suppliers. For example, to resolve a problem of the landfill for sewage sludge, Vodokanal used a technology for dewatering and sludge incineration offered by a French company OTV. The total cost of the waste treatment plant construction (first two phases) was Rb 450 million, half of which was provided as an intergovernmental Russian-French credit. To pay off the loan, Vodokanal plans to distribute the French technology throughout Russia.

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Industries

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In the early 1990s, there was little incentive for industries to implement environment-friendly practices, and municipal environmental funds received little revenue from fees, penalties, and lawsuits against polluters. Now local authorities have developed a relationship between the municipality’s environmental fund and companies that use natural resources that should motivate enterprises to implement environmentally-friendly technologies and to produce environmentally friendly products. This plan assesses significant penalties and charges for waste discharges and use of natural resources, and provides short-term credits and privileges for implementing environmentally safe practices and technologies.

Although industrial companies may gain operating cost advantages from reducing pollution, there are still few private enterprises that can afford the required capital investments. The key to selling wastewater treatment equipment to Russian industries is to seek involvement in the numerous non-environmental upgrade projects that include wastewater treatment as a part of the project's general requirements. Such projects may be financed from various sources, including international funding.

Northwest Russia is a very industrial area with several industries that are likely to use their own funds for wastewater management in the next three years: oil and gas (Murmansk, Archangelsk), energy (St. Petersburg, Murmansk), mining (Murmansk), metal production (aluminum, nickel, iron and steel) (Leningrad Oblast, Vologda, Murmansk), and chemicals (Vologda, St. Petersburg). In the Leningrad region, for example, the Helsinki Convention on Baltic Sea Protection lists 27 industrial enterprises as having the largest impact on the pollution levels in the Gulf of Finland. These include the Volkhov Aluminum Mill, Kirishi Oil Refinery, Slantsy Processing Plant, Syas Pulp and Paper Mill, Vyborg Pulp and Paper Mill, and Boksitigorsk Alumina Mill. See the contact list for these companies in this region.

Foreign-owned business ventures represent another possibly attractive market opportunity for U.S. suppliers. Russian-foreign joint ventures, including manufacturing, have been successfully operating in Northwest Russia for at least five years, and it is expected that foreign investment will start to increase again following the presidential elections in 2000.

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Local Research and Development Companies

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Both municipalities and industries work closely with local research institutions to develop environmentally related projects. Research centers provide recommendations on which suppliers to use and how to combine domestic and foreign equipment in a project.

Scientific research in water treatment has been primarily focused on environmental problems in chemical, oil, and pulp and paper industries, with the main task of developing new wastewater recycling technologies (closed looped water consumption). The major research centers working in these areas are the institutes of the Russian Academy of Sciences (Research Center for Environmental Safety, the Research Institute of High-Molecular Compounds); higher educational establishments (the Technological Institute, the Technological University of Plant Polymers); and other research centers (Plastpolymer Research and Production Center, Research Institute of Paper, and Institute of Applied Chemistry). Theories of wastewater recycling for other industries are also developed by the Institute of Geology, the Northwest Polytechnical Institute, Technical University, and the "Rubin" laboratories. Technologies, procedures and equipment for sewage decontamination that recovers heavy metals (the by-products of galvanic processes and etching, plate-making in printing industry, etc.) are studied and developed at the Institute of Applied Chemistry, the Research Institute of Chemistry of St. Petersburg University, the University of Light Industry, "Pigment" Co, and some others.

MARKET ACCESS

There are no insurmountable obstacles to penetrate this sector of the Russian market. However, administrative and competitive factors present substantial challenges to American companies wishing to establish themselves in Russia.

Import duties can be quite high, from 5 to 20 percent, for different types of equipment, although for many types of environmental equipment, for example analytical devices, import taxes can be waived. Also, Russian importers will pay a value-added tax, which is currently levied at a 20 percent rate.

To be imported and installed, environmental equipment must receive appropriate certification by Russian authorities, which issue certificates of conformity to Russian standards. Normally, Russian certification centers require that imported equipment should be tested by one of the local testing centers accredited by GOSSTANDART (Russian State Standards Committee), the primary Russian standards organization. However, local end-user of water treatment equipment report that in cases of deliveries of equipment to be used for large municipal projects, actual testing is not really required, and certificates of conformity are issued based on foreign certificates of safety provided by the exporting companies. Detailed information on the certification process and the taxation system can be found in BISNIS Bulletins (U.S. Department of Commerce Business Information Service for the Newly Independent States) and FCS reports.

There are no formal distribution channels in Northwest Russia for sales of industrial or municipal water treatment equipment and services. Vendors target specific customers and make direct sales. When international financing is involved, the funding organization may also become involved in the discussions leading to a business agreement.

U.S. firms should invest time and resources in establishing strong relationships with potential clients and the city administration. The first sale can be difficult and time consuming but it is also a key to gaining recognition and future sales. In general, a continuous presence in the local market, assignment of a local representative, and regular visits to the region help keep American suppliers informed of market changes and opportunities, which may sometimes be unexpected. Participation in local environmental trade shows and conferences as well as in a periodic event called “Environmental Week” is one of the ways that a U.S. supplier can market its water treatment equipment. Information on such events is available at C S, St. Petersburg and from the U.S. Department of Commerce's National Trade Data Bank.

A firm that has such constant sources of information on the market can also find itself in a better competitive position when it chooses to participate in a municipal tender. Local practice

shows that once a tender is officially announced and published by the St. Petersburg or regional administration, there is little time for bidders to prepare the required documents and, what is

probably more important, to establish an initial understanding with the local agencies involved. Usually, a bid winner has knowledge of an upcoming tender announcement in advance, either from its local partners or its own representatives. Another way of becoming involved in an environmental tender is to establish timely cooperation with a local winner and act as its subcontractor in a number of works included in the water treatment project.

Price remains an important issue for municipal budget-dependent organizations, which are major customers for water treatment technologies. In other cases, when the purchase is made by a

customer with available funds (a chemical or metal enterprise, for example) or where funding is provided by an international financing institution, price may be not so important. Successful financing of environmental purchases can be obtained from multilateral organizations mentioned in this report. The World Bank normally seeks government guarantees for their loans. Loans provided by EBRD and the U.S. Overseas Private Investment Corporation (OPIC) are more fully commercial, but still offer lower interest rates than those available from commercial banks. OPIC also offers political risk insurance for U.S. companies investing in Russia.

KEY CONTACTS:

FEDERAL AGENCIES:

State Committee for Environmental Protection of the Russian Federation

Viktor Danilov-Danilyan, Chairman

4/6, Bolshaya Gruzinskaya Ul., Moscow 123812, Russia

tel: 7 (095) 254-7683

fax: 7 (095) 254-8283

Federal Environmental Fund

Tel: 7 (095) 124-0444

Pavel Anisimov, Chairman

Ministry for Natural Resources of the Russian Federation

4/6, Bolshaya Gruzinskaya ul., Moscow, 123812, Russia

tel: 7 (095) 254-7633

fax: 7 (095) 254-4310; 254-6610

Viktor Orlov, Minister

Department of Water Supply

6-B, Orlikov per., Moscow, 107139, Russia

tel: 7 (095) 207-8012

Oleg Kazantsev, Chief

Ministry of Economy of the Russian Federation

1-3, ul.Tverskaya-Yamskaya, A-47, Moscow, 125818, Russia

tel: 7 (095) 200-0745

fax: 7 (095) 251-6965

Andrey Shapovalyants, Minister

MUNICIPAL AND REGIONAL AGENCIES:

Committee for Environmental Protection and Natural Resources for St. Petersburg

and Leningrad Oblast (a regional branch of the Ministry of Ecology)

Alexey Frolov, Chairman

Sergey Yermolov, Head of International Department

29, Bolshaya Konyushennaya ul., St. Petersburg, 191186, Russia

tel: 7-(812)-312-3682; 311-0617

fax: 7-(812)-312-7977

Office for Environmental Protection, St. Petersburg City Administration

Smolny, St. Petersburg, 193060, Russia

tel: 7-(812)-278-1119

fax: 7-(812)-278-1237

Office of Environmental Protection, St. Petersburg City Administration

Anatoly Bayev, Director

Smolny, St.Petersburg, 193060, Russia

tel: 7 (812) 278-1067

fax: 7 (812) 278-1506

LenMorZaschita (Sea Protection Department)

10/7, Admiralteyskaya nab., St. Petersburg, Russia

Vladimir Lesogorov, Deputy Director

Tel: 7 (812) 312-3538

Fax: 7 (812) 312-4027

ECAT (Environmental Center for Administration and Technology)

Yelena Titova, Manager

25/11, 2 Linia V.O., St. Petersburg, 199053, Russia

tel: 7 (812) 218-7924

fax: 7 (812) 218-1441

Center for Environmental Safety

18, ul. Korpusnaya, St. Petersburg, Russia

Alexander Voronov, Head of Lab

Tel: 7 (812) 230-7940

Fax: 7 (812) 235-4361

Vodokanal St. Petersburg

Felix Karmazinov, Director General

42, ul. Kavalergardskaya, St. Petersburg, 193015, Russia

tel: 7-(812)-274-1090

fax: 7-(812)-274-1361

Committee for Environmental Protection, Archangelsk Administration

49, Troitsky pr., Archangelsk, 163061, Russia

Viktor Kuznetsov, Deputy Chairman

Tel: 7 (8182) 494-150

Fax: 7 (8182) 447-504

Institute of Ecological Problems

57, ul. Vyucheiskogo, Archangelsk, 163046, Russia

Nikolay Afanasyev, Deputy Director for Science

Tel: 7 (8182) 441-162

Fax: 7 (8182) 490-020

Ministry of Ecology and Natural Resources of the Republic of Karelia

9, ul. Dzerzhinskogo, Petrazavodsk, 185035, Russia

Mikhail Fedchenko, Minister

Boris Zubkovich, Chief of Water Protection Department

Tel: 7 (81422) 73656

Fax: 7 (81422) 73656

PRODUCT CERTIFICATION:

GOSSTANDART

9, Leninsky pr., Moscow, 117049, Russia

tel: 7 (095) 236-4044

fax: 7 (095) 237-6037

Test-St.Petersburg

Yury Gulynin, Deputy Director

1, ul. Kurlyandskaya, St. Petersburg, 198103, Russia

tel: 7 (812) 251-4859

fax: 7 (812) 251-4108

RESEARCH CENTERS:

Research Institute of Environment and Reserve Affairs (VNIPRIRODA)

Znamenskoye-Sadki, Moscow 113628, Russia

tel: 7 (095) 423-0322

Russian State Hydrometeorological Institute

3, pr. Metallistov, St. Petersburg, 195027, Russia

Alexander Gavrilov, Director

Tel: 7 (812) 224-3039

Fax: 7 (812) 221-4132

Russian Integrated Research and Design Institute for Water Supply,

Sewage, Hydraulic and Hydrogeology Engineering (NIIVODGEO)

42, Komsomolsky pr., Moscow 119826, Russia

tel: 7 (095) 242-5217

fax: 7 (095) 242-1565

LenVodokanalProject Design Institute

5, ul. Torzhkovskaya, St. Petersburg, 197342, Russia

tel: 7 (812) 246-6585

fax: 7 (812) 325-2630

Scientific Center of the Russian Academy of Sciences, Council on

Ecology and Natural Resources

tel: 7-(812)-213-3025

fax: 7-(812)-213-3025

Russian Scientific Center "Applied Chemistry"

14, pr. Dobrolyubova, St. Petersburg, 197198, Russia

tel: 7-(812)-238-9484

fax: 7-(812)-232-5523

State Special Marine Environment Inspection

V.I. Sokolov, Head

13, 12 Linia V.O., St. Petersburg, 199178, Russia

tel: 7-(812)-213-0266

fax: 7-(812)-213-0266

Nevskgeologia Co

40/7, Kondratyevsky pr., St. Petersburg, 195197, Russia

tel: 7 (812) 540-4411

fax: 7 (812) 272-2392

Petersburg Engineering Center for Environmental Projects

S.L. Korovitsky, Director

tel: 7-(812)-213-0322

fax: 7-(812)-218-8080

Engineering Center for Environmental Works

Vladimir Reshetov, Director

40/7, Kondratyevsky pr., St. Petersburg, 195197, Russia

tel: 7-(812)-541-3107

fax: 7-(812)-272-2392

Khlopin Institute of Radium

28, pr. Shvernika, St. Petersburg, 194021, Russia

tel: 7-(812)-534-9523

fax: 7-(812)-247-5781

St. Petersburg State University of Architecture and Construction

4, 2 Krasnoarmeyskaya ul., St. Petersburg, Russia

tel: 7-(812)-316-9965

fax: 7-(812)-316-5872

All-Russia Institute of Geophysics (VIRG)

20, ul. Fayansovaya, St. Petersburg, 193019, Russia

tel: 7-(812)-567-5037

fax: 7-(812)-567-8741

All-Russia Design Institute of Energy Technologies (VNIIPIET)

82, ul. Savushkina, St. Petersburg, 197228, Russia

tel: 7-(812)-239-0393

fax: 7-(812)-239-1898

North-West State Monitoring Center of Environmental Pollution

A.G. Degtyarev, Director

tel: 7-(812)-213-6619

fax: 7-(812)-218-0962

Projectgazoochistka Ltd

6, Smolensky pr., St. Petersburg, 193029, Russia

Mark Bargman, Chief Engineer

Tel: 7 (812) 567-4900; 265-1819

Fax: 7 (812) 567-4900

Research Center for Environmental Safety for Russia's Academy of Sciences

18, ul. Korpusnaya, St. Petersburg, 197042, Russia

Vladislav Donchenko, Director

Ludmila Romanyuk, Secretary for Science

Tel: 7 (812) 230-7836; 230-7936

Fax: 7 (812) 235-4361

e-mail: wr@srces.samson.spb.su

RAND Center

Yury Nikolayev, Director

tel: 7-(812)-534-6718

AKVA, Russian Academy of Sciences

9, 26 Line V.O., St. Petersburg, 199026, Russia

tel: 7 (812) 217-8190

fax: 7 (812) 217-7798

Vodokanal Engineering Center

40, 17 Line V.O., St. Petersburg, 199178, Russia

tel: 7 (812) 355-8387

fax: 7 (812) 355-8274

Gipronichel Institute

11, Grazhdansky pr., St. Petersburg, Russia

tel/fax: 7 (812) 535-8333

Vodoproject Institute

8, ul. Kronshtadskaya, St. Petersburg, 198096, Russia

tel: 7 (812) 183-1555

fax: 7 (812) 183-3237

Gidropribor

13, Vyborgskaya nab., St. Petersburg, 195009, Russia

tel: 7 (812) 542-9946

fax: 7 (812) 542-9659

Hydrological Institute

23, 2 Linia V.O., St. Petersburg, 199053, Russia

Igor Shiklomanov, Director

Irina Petrova, Senior Specialist

Tel: 7 (812) 213-3517; 213-3447

Fax: 7 (812) 213-1028; 213-3447

MANEB (International Academy of Environmental Safety)

9a, 26 Linia V.O., St. Petersburg, 199026, Russia

Viktor Rogalev, Director

Tel: 7 (812) 217-0451

Fax: 7 (812) 217-0077

Archangelsk State Technical University

17, nab. Severnoy Dviny, Archangelsk, 163007, Russia

Konstantin Bogolitsin, Head of Physical Chemistry Department

Tel: 7 (8182) 449-131; 449-348

Fax: 7 (8182) 441-146

Doverie

Archangelsk, Russia

Yury Sadovnikov, Director General

Tel/fax: 7 (8182) 653-711

Committee for Environmental Protection, Murmansk Administration

Murmansk Administration, Murmansk, Russia

Ivan Vishnyakov, Chairman

Anatoly Kostin, Expert on Environmental Projects

Tel: 7 (8152) 560-377; 565-969

GosZhilCom (Committee for Residential Issues), Murmansk Administration

Murmansk Administration, Murmansk, Russia

Yury Dunin, Director

Tel: 7 (8152) 452-792

Fax: 7 (8152) 476-759

DOMESTIC PRODUCERS OF WATER TREATMENT EQUIPMENT

Water-Machine Equipment Plant

111, per. Truda, Voronezh, 394360, Russia

tel: 7 (0732) 160-200

Biovit

19, ul. Shartashskaya, Room 110, Yekaterinburg, 620219, Russia

tel: 7 (3432) 554-317

fax: 7 (3432) 554-232

Noosphere

Moscow

tel: 7 (095) 298-5342; 298-0302

fax: 7 (095) 298-0302; 387-4975

NIISugol

Perm, 614000, Russia

tel: 7 (3422) 329-529

Aqua Vers

6/8, ul. Pisareva, St. Petersburg, 190121, Russia

tel: 7 (812) 114-7604

fax: 7 (812) 114-7589

Vodopribor

14, ul. Dnepropetrovskaya, St. Petersburg, 192007, Russia

tel: 7 (812) 166-2392

fax: 7 (812) 166-3950

LenNIIChimmash

9, ul. Nevskogo, St. Petersburg, 193167, Russia

tel/fax: 7 (812) 274-0888

MosvodokanalNIIproject

4, Pleteshkovsky per., Moscow, 107005, Russia

tel: 7 (095) 261-5384

fax: 7 (095) 261-7775

Tyumengastechnology

213-B, Tyumen 625016 Russia

tel: 7 (3452) 211-887

fax: 7 (3452) 214-746

Volkhovgips Association

29, Kirovsky pr., Leningrad Oblast, 187400, Russia

Oleg Ivanov, Director

Tel: 7 (81263) 27232; 27838

Fax: 7 (81263) 12200

DISTRIBUTORS AND USERS

Bicom

7, 20 Linia V.O., St. Petersburg, 199026, Russia

tel: 7 (812) 320-5559

fax: 7 (812) 320-5560

e-mail: bicom@mail.nevalink.ru

Vinco

47, ul. Prof.Popova, Office 826, St. Petersburg, 197022, Russia

tel: 7 (812) 234-1869

fax: 7 (812) 230-7248

VodoteploService

7-25, 2 Linia V.O., St. Petersburg, 199034, Russia

tel: 7 (812) 323-0195

fax: 7 (812) 304-4986

National Water Resources Ltd

5, ul. Torzhkovskaya, Office 410A, St. Petersburg, 197342, Russia

tel: 7 (812) 324-4001

fax: 7 (812) 324-4011

e-mail: vital@mailbox.alkor.ru

Ecotrade-Akva

13, ul. Goncharnaya, St. Petersburg, 193036, Russia

tel: 7 (812) 277-3072

fax: 7 (812) 277-2261

e-mail: ecotrade@mail.wplus.net

Municipal Water Purification Co

17A, ul. Uralskaya, St. Petersburg, 199155, Russia

tel: 7 (812) 325-9263

fax: 7 (812) 352-1404

Osko

50, Kamennoostrovsky pr., St. Petersburg, 197022, Russia

tel: 7 (812) 327-5252

fax: 7 (812) 325-1346

e-mail: osko@mail.wplus.net

Osmos

14, nab.Obvodnogo Kanala, St. Petersburg, 193019, Russia

tel: 7 (812) 567-3587

fax: 7 (812) 567-3587

e-mail: osmos@piter.net

Pirometer

16, ul. B.Monetnaya. St. Petersburg, 197101. Russia

tel: 7 (812) 238-7245

fax: 7 (812) 233-8306

e-mail: pirometr@mail.ru

TRADE ASSOCIATIONS:

American Chamber of Commerce, St. Petersburg Chapter

Sviatoslav Bytchkov, Executive Director

25, Nevsky pr., Atrium, St. Petersburg, Russia

tel: 7 (812) 326-2590

fax: 7 (812) 326-2591

Russian Chamber of Commerce and Industry

6, Ilyinka, Moscow, 103684, Russia

tel: 7-(095)-929-0286

fax: 7-(095)-929-0356

Russian Guild of Commerce

18/3, 1 Tverskaya-Yamskaya ul., Office 427, Moscow, 125047, Russia

Mikhail Mikheyev, President

Tel: 7 (095) 251-4559

Fax: 7 (095) 250-4561

Vologda Chamber of Commerce and Industry

29. ul. Lermontova, Vologda, 160035, Russia

Galina Telegina, President

Tel: 7 (8172) 721-480

Fax: 7 (8172) 723-258

e-mail: grant@vologda.ru

Kola Business Development Center (KBDC)

3, Tersky Lane, Murmansk, 183038, Russia

Igor Romanenko, Director

Tel: 7 (8152) 428-645

Fax: 7 (8152) 428-645

e-mail: kbdc@rosmail.ru

North Chamber of Commerce and Industry

10, per. Rusanova, Murmansk, 183766, Russia

Sergey Semenov, Deputy Chairman

Tel: 7 (8152) 472-999

Fax: 7 (8152) 473-978

e-mail: ncci@online.ru

Web Site: www.murmanweb.an.ru/ncci

Chamber of Commerce and Industry of Karelia

4, ul. Engelsa, Petrozavodsk, Karelia, 185035, Russia

Alexander Pankratov, President

Tel/fax: 7 (8142) 773-040

e-mail: chamber@karelia.ru

Web Site: http://chamber.karelia.ru

Pskov Chamber of Commerce and Industry

15a, ul. Sovetskaya, Pskov, 180000, Russia

Vladimir Zubov, President

Tel: 7 (8112) 163-883; 223-660

Fax: 7 (8112) 160-052; 233-887

TRADE EVENTS:

THE BIG CITY'S ECOLOGY, TRADE SHOW

Organizer: LenExpo,

Gavan, St. Petersburg, Russia

tel/fax: 7 (812) 356-3560

Web Site: www.lenexpo.ru

ENVIRONMENTAL WEEK

Organizer: ECAT (see above)

In the U.S.:

WASTE EXPO

Organizer: Environmental Industry Associations

4301 Connecticut Ave., NW, Suite 300

Washington, DC 20008-2304

tel: (800) 424-2869

Web site: www.wasteexposhow.com

HAZMAT INTERNATIONAL

Organizer: Advanstar Expositions

7500 Old Oak Blvd,

Cleveland, OH 44130-3369

tel: (216) 891-2695

fax: (216) 891-2741

WEFTEC

Organizer: Water Environment Federation

Tel: (703) 684-2452

Fax: (703) 684-2471

e-mail: coninfo@wef.org

Web Site: www.wef.org

ISA Customer Satisfaction Survey

U.S. Department of Commerce

* International Trade Administration*

The Commercial Service

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The U.S. Department of Commerce would appreciate input from U.S.

businesses that have used this ISA report in conducting export

market research. Please take a few moments to complete the

attached survey and fax it to 202/482-0973, or mail it to QAS,

Rm. 2002, U.S. Department of Commerce, Washington, D.C. 20230.

-----------------------------------------------------------------

* * * About Our Service * * *

1. Country covered by report: _______________________________

Commerce domestic office that assisted you (if applicable):

________________________________________________________

2. How did you find out about the ISA service?

__Direct mail

__Recommended by another firm

__Recommended by Commerce staff

__Trade press

__State/private newsletter

__Department of Commerce newsletter

__Other (specify): _______________________________

3. Please indicate the extent to which your objectives were

satisfied:

1-Very satisfied 2-Satisfied 3-Neither satisfied nor

dissatisfied 4-Dissatisfied 5-Very dissatisfied

6-Not applicable

__Overall objectives

__Accuracy of information

__Completeness of information

__Clarity of information

__Relevance of information

__Delivery when promised

__Follow-up by Commerce representative

4. In your opinion, did using the ISA service facilitate any of

the following?

__Decided to enter or increase presence in market

__Developed an export marketing plan

__Added to knowledge of country/industry

__Corroborated market data from other sources

__Decided to bypass or reduce presence in market

__Other (specify): _______________________________

5. How likely would you be to use the ISA service again?

__Definitely would

__Probably would

__Unsure

__Probably would not

__Definitely would not

6. Comments:

________________________________________________________

* * * About Your Firm * * *

1. Number of employees: __1-99 __100-249 __250-499

__500-999 __1,000+

2. Location (abbreviation of your state only):______

3. Business activity (check one):

__Manufacturing

__Service

__Agent, broker, manufacturer's representative

__Export management or trading company

__Other (specify):_______________________________

4. Export shipments over the past 12 months:

__0-1 __2-12 __13-50 __51-99 __100+

May we call you about your experience with the ISA service?

Company name: _______________________________________________

Contact name: _______________________________________________

Phone: ______________________________________________________

-----------------------------------------------------------------

Thank you--we value your input!

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This report is authorized by law (15 U.S.C. 1512 et seq., 15

U.S.C. 171 et seq.). While you are not required to respond, your

cooperation is needed to make the results of this evaluation

comprehensive, accurate, and timely. Public reporting burden for

this collection of information is estimated to average ten

minutes per response, including the time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Send comments regarding this burden

estimate or any other aspect of this collection of information,

including suggestions for reducing the burden, to Reports

Clearance Officer, International Trade Administration, Rm. 4001,

U.S. Dept. of Commerce, Washington, D.C. 20230, and to the Office

of Information and Regulatory Affairs, Office of Management and

Budget, Paperwork Reduction Project (0625-0217), Washington, D.C.

20503.

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FORM ITA 4130P-I (rev. 5/95)

OMB. No. 0625-0217; Expires 12/31/96