Construction Machinery Market – Sakhalin
Region, Russian Far East
February 2006
Author:
Elena Sabirova, BISNIS representative in Yuzhno-Sakhalinsk
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SUMMARY
The
construction industry is a leading sector in the Sakhalin region, and mostly
focuses on the needs of the major driver of the local economy, the oil and gas
complex. For the past two years, with the construction of a trans-island
pipeline and major developments in the oil and gas sphere, local construction
companies were able to expand their activities. In addition, some new companies
came to Sakhalin Island to work on major contracts, including foreign ones,
such as Chicago Bridge and Iron (www.cbi.com)
and several Turkish construction companies (in 2005, the number of Turkish
expat workers in the region almost tripled compared to 2004). The number of
foreigners who came to work in the local construction sector in 2005 was almost
8,000 people. This report gives a general overview of the construction sector
on Sakhalin and the market for construction machinery.
The
main potential end-users for construction machinery are the oil consortia and
their subcontractors, which are developing the largest construction projects in
the region.
Investment
in the Sakhalin-1 project increased from $1.4 billion in 2004 to $1.8 billion
in 2005. Sakhalin-2
has a total budget of $10 billion, which is planned to be significantly
increased. The two projects increased spending by 20-25 percent each (to $2
billion for Sakhalin-1 and $4 billion for Sakhalin-2) in 2005.
Sakhalin-1
built a 225-kilometer pipeline to transport crude oil westerly across Sakhalin
Island and the Tatar Strait to the DeKastri terminal in Khabarovsk. Nippon
Steel Corporation and its Russian affiliate NS Neftegazstroy Limited, as well
as two Russian companies—LUKoil-Neftegazstroy, and SMU-4—were involved in the
construction of the pipeline. In February 2004, U.S. Fluor Corporation was chosen to provide
engineering and procurement services for Sakhalin-1. The value of the contract
to Fluor is in excess of $80 million. In Summer 2003, Exxon Neftegas Limited
selected Fluor for a separate contract to provide construction management
services for the project. The scope of work under this management contract is
valued at more than $500 million. Under this contract, 80 percent of which is
subcontracted, Fluor manages several large Russian construction companies to
install an onshore oil and gas processing facility and well-pad infrastructure
near the Chayvo field.
Sakhalin-2
is building the first in Russia LNG plant in the south of the Island, and it is
possible the scope of the project will be expanded if more contracts for LNG
sales are signed. The second phase consists of installation of an offshore
platform at the Piltun Astoskhskoye field and the installation of a single
large platform at the Lunskoye gas field. These platforms, as well as the
Molikpaq (part of the Phase 1), will be linked to the shore by offshore
pipelines. The oil and gas will then be transported via 800 km of onshore
pipelines to Prigorodnoye, in the south of Sakhalin Island, the site of a new
LNG plant and oil and LNG export terminals. The platform at Lunskoye field will
produce the major part of gas processed at the LNG plant. Nine subcontractors
are involved in this construction, and the total amount of workers involved is
more than 6,000.
Additional opportunities will arise from the
planned Sakhalin-3 and Sakhalin-5 projects, which significantly exceed
Sakhalin-1 and Sakhalin-2 in reserves, and where the construction is still
ahead (Sakhalin-5 is in its exploration drilling stage).
Residential and commercial construction
The increase of business activity due to oil and gas projects has led to high demand for housing, hotels, and office space. The hotel construction boom is almost over in Yuzhno-Sakhalinsk, the regional center, where two large hotel complexes are in different stages of construction. Therefore, the local hotel market, which was in decline just a few years ago, is now stable.
The demand for office space is still not satisfied, despite several office buildings that were recently constructed in the city. ExxonMobil is currently building its own large office in Yuzhno-Sakhalinsk.
The rate of residential construction is still lagging behind the actual market demand. Oil companies have even had to build their own residential complexes in order to provide housing for their workers.
1. The largest local construction companies
(Sakhalinmorneftemontazh, Transstroy-Sakhalin, JV Su-4, JV Grenada & FSC,
and Sphera) have contracts with oil consortia, which account for half of all
the regional construction potential.
2. Sphera, one of the leading local
construction companies on the Island, completed such projects as the Zima
village (housing complex for expat oil project workers); the school at Zima;
housing for expats in Yuzhno-Sakhalinsk; several hotel projects; and an office
complex. The company has been buying both Russian manufactured and imported
road and construction equipment for its projects. Due to harsh climatic
conditions and the softness of the soil on certain parts of Sakhalin Island,
domestically manufactured machinery tends to be more suitable and cheaper to
maintain than imported analogues. Sphera is utilizing all kinds of construction
machinery – wheel excavators, large front-end loaders, bulldozers, cranes,
vibrorollers, and dump trucks.
3. Sakhalin Machinery, an official Caterpillar
dealer, has been active on Sakhalin since 1997. It has 200 employees and a
3,000 square meter workshop that will be awarded its first star rating for
contamination control by Caterpillar in 2006. The company’s equipment qualifies
as 100 percent Russian content.
4. InterraMasService is an official dealer of
Komatsu on Sakhalin and has a well-established depot. The company sells both
new and used machinery including bulldozers, excavators, loaders, vibrorollers,
trucks, cranes, and autograders.
5.
Liebherr company (www.liebherr.com) made
a number of successful sales on Sakhalin after establishing an office on the
Island. Liebherr cranes, for instance, are used on large office construction
sites.
6. Sakhalin Logistics Trading has been selling
machinery for several years, and is currently interested in expanding its
business with the help of an international partner (To get more details on
SLT, please contact BISNIS representative on Sakhalin).
Market Access
The Sakhalin-based BISNIS representative can provide
information for U.S. companies interested in the local market. Getting contacts
and e-mailing to companies is a good start, but it is recommended that
interested U.S. companies visit the Island and meet with at least five local
companies of potential interest. BISNIS can support such a trip, to the extent
of its capabilities, by providing available contact lists, and assisting with
some meetings arrangement and simple local logistics.
Local Trade Shows
The experience of many U.S. companies has shown that
participation in a local event can be one of the most successful ways to
explore local business opportunities. Unlike regular business visit with a set
of pre-planned meetings, it provides the opportunity to meet more companies and
get a picture of the market more quickly. To participate, it is usually enough
to contact the organizers (www.sakhexpo.ru)
several months before the trade show and to secure a place for a booth (please
note that space is usually limited due to insufficient size of expo facility).
Sakhexpo usually has materials in English available for potential participants
and can handle the initial correspondence in English. Two popular local events
that are recommended for visit are:
1. |
4th
Annual Trade Show SakhalinStroyExpo |
May
16-18, 2006 |
Machinery,
technologies, services, and innovations in industrial and dwelling
construction and public utilities. |
2.
|
8th
Annual Trade Show Oil, Gas, Infrastructure/SIGOLD |
August
22-24, 2006 |
Technology,
equipment, exploration; transportation an other related industries |
SIGOLD
– Oil, gas, infrastructure http://www.sakhexpo.ru/prev/eng/sigold.php
Total amount of participants in 2005 was 61 companies (five companies advertised in the Trade Show catalog only, which is also an option). The participants were companies from Sakhalin region – 46 percent; companies from other regions of Russia – 43 percent; foreign companies – 11 percent.
The
representatives of Kentech, KCA Deutag Drilling, Romona Geosolutions,
Halliburton, Starstroy (pipelines construction), Energostroy,
Neftegasenergostroy, Sakhalin Energy, Exxon Neftegas, Bets (Bechtel/Enka;
TekhnoStrojexport) visited the show. According to the organizers, the amount of
preliminary concluded contracts at the trade show totaled more than $10
million. More than 1,000 people visited the show during the three-day expo.
Sakhalinstroyexpo
http://www.sakhexpo.ru/prev/eng/stroy.php
In
2005, the trade show had more than 2,000 attendees, including local Administration
Construction Department officials, and delegations from Japan and China.
Construction and trading companies from different Russian regions, companies
from South Korea, Sweden, Germany, and Austria also participated in the trade
show. The event was visited by more than 20 local construction companies who
did not have booths at the show, but were interested to talk to the
participants; the amount of preliminary contracts discussed at the event
totaled more than $20 million.
In
addition, the 10th Sakhalin Oil & Gas Conference 2006 will
take place during September 27-28, 2006, in Yuzhno-Sakhalinsk, organized by IBC Energy Conferences. For more
information, visit www.ibcenergy.com/sakhalin
*****************************************
Services
available from the U.S. Commercial Service in Russia (CS)
Gold Key Program has been designed to assist
U.S. exporters enter and expand in overseas markets. The Gold Key-Matching Service is designed to be the most cost
effective means for American exporters to enter the important and complex
Russian market. A full schedule of
business meetings (generally 4-5 meetings/day) with potential agents,
distributors or joint venture partners will be organized by CS staff who will
accompany the client and share their industry sector knowledge and
insights. The basic Gold Key Service
cost is $685.
Customized Market Research (CMR) provides U.S. firms
with customized, individualized information on overseas markets. The service
provides specific information for specific products or services. CMR answers
questions such as the overall marketability of a product or service, market
trends and size, customary distribution and promotion practices, market entry
requirements, regulations, product standards and registration, key competitors,
and potential agents, distributors, or strategic partners. U.S. companies have
the flexibility to design their own question/set of questions or to choose from
a Core Menu of standardized questions.
Post
reserves the right to
subcontract work depending on Post’s resource at the time of the request. Cost dependent on the scope of the
research.
Contact List Service ($100) provides a list of
at least 10 quality contacts, with contact information verified, but whose
interest in your specific product has not been vetted.
For complete information on
services available from the Commercial Service in Vladivostok, please visit http://www.buyusa.gov/russia/en/
For more information on the Russian Far East, visit BISNIS online at www.bisnis.doc.gov
Contacts
Sphera
Constructon Co.
1A,
Kholmsk Shosse,
Yuzhno-Sakhalinsk,
Russia 693000
Tel
+7-4242-467967
Fax
+7-4242-773251
Alexey
Krestin; Deputy Director; Transportation
Tel/fax
+7-4242-773251
Sakhalin
Logistics Trading
32,
Kommunisticheski Ave.
Yuzhno-Sakhalinsk,
Russia 693009
Tel/fax
+7-4242-462092
Fax
+7-4242-728512
Anatoly
Gavrish, Deputy Director
Sakhalin
Machinery
1B
Mira Ave.
Yuzhno-Sakhalinsk,
Russia 693000
Tel
+7-4242-462181
Fax
+7-4242-463707
http://www.sakhalinmachinery.ru/
InterraMashService
5,
Mira Ave.,# 40
Yuzhno-Sakhalinsk,
Russia 693000
Tel
+7-4242-463800
Tel/fax
+7-4242-463808
http://www.interramashservice.ru/
SakhalinEXPO
76,
Kommunisticheski Ave., # 313
Yuzhno-Sakhalinsk,
Russia 693000
Tel/fax
+7-4242-744169
INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE
UNITED STATES.