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. Last Updated: 07/27/2016

St. Pete Building Firms Facing Crisis

ST. PETERSBURG -- Local construction companies face an imminent crisis if they continue to be overlooked in the lucrative market of foreign-investment projects, industry experts say.

To support local firms in their bid to win contracts, St. Petersburg City Hall and construction industry professionals have proposed introducing voluntary accreditation that would provide foreign investors with reliable information about local firms.

Last year, 2.3 million square meters of new production and civil facilities were built in St. Petersburg, a comparable amount to that done in the residential and commercial sectors, experts said.

"Unfortunately, we focused on residential construction and land plots, and thus missed production and civil construction," said Lev Kaplan, vice president of the St. Petersburg Union of Construction Companies.

Foreign companies invested about $1.5 billion into the St. Petersburg economy last year, and 25 to 30 percent of this investment was in industrial construction.

Most projects were built by foreign contractors. Russian companies were generally employed only as subcontractors and never as general contractors for large projects such as the Coca-Cola and Wrigley plants. Toyota employed Finnish workers to perform excavation work on its construction site, and foreign firms were invited by Chinese investors to carry out engineering and construction works for the Baltic Pearl project, Kaplan said.

At the same time, the local construction industry is facing a crisis, he said. According to the union's data, the number of city construction companies decreased by 20 percent last year. About 15,000 people -- or 8 percent of industry employees -- lost their jobs. The total volume of work last year amounted only to 90 percent of that carried out in 2004. Profitability decreased from 12 percent in 2004 to 6.9 percent last year.

Both investors and local companies lack information, the experts said.

"Companies like Bosch, Alcan or Toyota choose contractors through international tenders and thus fail to take into account the particularities of the national market," said Alexei Sorokin, head of the industrial investment department of St. Petersburg City Hall's Committee for Economic Development, Industrial Policy and Trade.

Foreign firms unfamiliar with local specifics spend longer getting the necessary approvals from authorities, and their projects get delayed. City Hall has to spend time "educating" foreigners, which "distracts the authorities from other projects," Sorokin said.

A list of certified contractors would let the committee offer their services to foreign investors, he said, while finishing projects earlier would increase investor numbers.

The union will begin offering voluntary certification this month, with company image, technical opportunities, production volume, business solvency and rating according to international quality standards to be taken into account in the certification process.

Local businesspeople agree that a lack of information is the main problem.

"Major investors -- foreign companies -- face difficulties orientating themselves in the local market and look mainly at brands such as Skanska, Enka and Renaissance. We do not have such companies," said Viktor Putro, director for development at ITM Group.

In addition to accreditation, Valery Klimov, CEO of Pulkovo industrial construction company, proposed defining an amount of work that foreign investors would have to set aside for local contractors.