Contractual Trio

Moscow has signed its third offset contract, that obliges the investor to localize ITS production in Moscow.
At the end of 2019, the Moscow government, after a tendering procedure, signed a ten-year offset with GeMaMed that will replace almost one hundred percent of the city's ostomy-related medical device imports with local productions.

The investor will provide 1 billion rub to the project in Moscow over the course of three years. The investment phase will be held in two stages, taking into account the varying degrees of complexity in manufacturing products that will supply urban needs over an eight-year period. The supply volume under the contract will amount to 8.6 billion rub. It is important that all manufactured medical devices will be tested by the Moscow Department of Health.

"Signing an offset contract with the Moscow Government is extremely important not only for the development of our company, but also for the industry as a whole. With an offset contract, modern ostomy care products will become even more affordable. We are planning to create our own high tech production in the Technopolis Moscow special economic zone," commented Kirill Alekseev, General Director of GeMaMed LLC.
APROPOS
An offset contract is a long-term government contract that guarantees the city's long-term demand, on the one part, and obliges an investing supplier to invest in a modern production plant, the products of which will be supplied under the concluded contract, on the other part.

The First Fruits

This offset contract for the production of medical products was the third one; Moscow has already entered into two offsets in pharmaceutics, both for a duration of 10 years. As part of the contracts, the city will localize the production of drugs for the treatment of cancer, cardiology, endocrine and immune diseases. Subsequently, drugs will be supplied to the capital for seve­ral years.

"The total volume of investments under two offsets in the pharmaceutical industry is 8.8 billion rub, and the volu­me of supply amounts to 32.4 billion rub. The contracts provide for import substitutions of more than half of all medicines needed: 27 out of 53 drugs that are to be produced at the new plants are not currently manufactured in Russia. At the moment, the projects are being implemented in the special economic zone in Zelenograd," said Vladimir Efimov, Deputy Mayor of the Department of Economic Policy and Landholding Affairs of Moscow Government.

The first offset contract was signed by Moscow in October 2017 with BIOCAD. According to its terms, the investor will establish a facility in the city to produce 22 modern cancer & immunology-related medicines and supply them over the course of 7 years. The contract's value is 14 billion rub, and the volume of investments in the facility is 3 billion rub.

R-Opra LLC became an investor under the terms of the second offset contract, which was signed in autumn of 2018. According to the contract, the production of 31 medicines will be localized to Moscow within 4 years, including the production of biological components necessary for 3 medicines. The supplier-investor will fulfill contractual obligations for 18.4 billion rub, and the investments under the second offset will amount to 5.8 billion rub for the creation of 12 production lines. The medi­cines to be produced under this contract include those used for the treatment and prevention of cancer, endocrine and cardiac-related diseases.
In the future, in addition to pharmaceuticals and medical products, Moscow is planning to sign offset contracts for industries such as transportation, machinery and materials for housing and utilities, IT equipment, and catering

Both Sides

"One of the main objectives of an offset contract is to encourage the business to invest in new enterpri­ses or to upgrade existing facilities. According to contract law, an offset contract can be entered into for a period of up to 10 years, the mini­mum investment is 1 billion rub, and the goods supplied must be of Russian origin; specifically a high degree of localization is required," explained Alexander Prokhorov, head of the Moscow Department of Investment and Industrial Policy.

Both parties get benefit from an offset contract. The city gets to substitute imports in socially significant areas, which increases the tax base, creates new jobs and saves budget funds used for procurement, since the price of purchased pro­ducts is reduced as a result of tendering procedures.
The total volume of investments under three offset contracts of Moscow was
billion RUR
The supply volume was 41 billion RUR
As for benefits to the business, an offset contract with Moscow means a contract with a highly reliable purchaser, as the capital is one of the largest public customers. The investor is also guara­nteed long-term sales for localized products. After fulfilling its contractual obligations, the company is included in the regional register of sole suppliers.

Among other things, the business can expect various benefits from the city as part of existing support measures, including land plots for the production site, reduced taxes, rental rates for land and utili­ty subsidies that cover up to half of total costs.

Future

The Moscow government assures that they will continue entering into offset contracts, since the signed offsets have been efficient in sa­ving budgets; their initial high prices were reduced by a total of 32% as a result of tendering procedures.

"In the future, in addition to pharmaceuticals and medical pro­ducts, Moscow is planning to sign offset contracts for industries such as transportation, machinery and materials for Housing and Communal Services, IT equipment, and food industry," said Leonid Kostroma, Director of the Moscow City Investment Agency. "When selecting industries for offsets, we first analyse products that are high in demand in the city. Priority is given to areas in which there is a large volume of procurement that consists of im­ported goods. It is important that we provide ourselves with high quality domestic pro­ducts and reduce prices."

Offset contracts are an attractive and promising mechanism for cooperation between businesses in the industrial sphere and the governments of all regions in the country. The rest of Moscow Oblast is already following in the capital's footsteps; In the summer, the region signed its first offset for the supply of medicine.
E-mail: pressprom@mos.ru
Audience: 16+