As a part of the Russian Government’s policy of import substitution in the IT sector, a number of new initiatives have been discussed at government level requiring state-owned companies and agencies to use Russian software and equipment. A Presidential Administration’s Working Group is also considering requiring Russian telecom operators and data centres to use mostly equipment and IT products of domestic origin.
A number of initiatives
Starting from 1 January 2016, Russian state (federal) and municipal agencies can buy software of foreign origin only in cases where there is no comparable domestic analogue or where such analogues do not meet their tender requirements. Legislation (see here* and here*) prohibits these agencies from using foreign e-document management programmes, as well as foreign accounting and human resources systems. If a public authority nevertheless decides that the purchase of foreign IT products is necessary, it will have to justify this decision and in particular specify the reasons why the domestic products do not meet its requirements.
In late July, as a part of the implementation of the import substitution plans, Russian Prime Minister Dmitry Medvedev approved* a three-year plan on the state agencies and non-budgetary funds’ full switch to domestic software. The Government plans to adopt the documents setting out the requirements and rules for procurement of the software needed to ensure a progressive move to domestic software within the next three years. The development of a pilot project will also have to be completed within this period.
State-owned companies were reported to have been sent a directive* by First Deputy Prime Minister Igor Shuvalov on 11 July 2016. Specifically, the directive ordered the representatives of the Government in such companies’ boards of directors to vote in favour of amending their provisions on procurement procedures, giving priority to domestic software. If foreign software is selected, such choice has to be justified publicly within seven days. Similar rules also apply to the subsidiaries of state-owned companies.
In addition, Russian Government Decree No. 925, which will come into force on 1 January 2017, defines the manner and conditions under which Russian products will have priority when purchased by state-owned companies and corporations through tenders, auctions or by other means in accordance with Federal Law No. 223-FZ dated 18 July 2011*. In short, the Decree establishes the rule that “domestic” applications will be assessed at a price that is reduced by 15% from the price proposed by the applicant. That said, the agreement will be concluded at the price initially offered. For more information on this Decree and its impact on business, please see here for our earlier Alert.
In addition, the possibility of organising inspections to check whether the foreign made IT systems being used by state enterprises and institutions can be replaced with domestic analogues is being considered*.
As for Russian telecom operators and data centres, according to a recent proposal* put forward by the Presidential Administration’s Working Group, the share of these companies’ domestic IT equipment and software products should be 85% by 2020. Moreover, the proposal’s authors are examining the possibility of totally banning these companies from using foreign IT products for providing services to government bodies and agencies.
The representatives of the Russian Ministry for Economic Development have noted* that replacing foreign document management software products with domestic ones will improve the level of security and transparency of IT goods procurements. It will also have a positive influence on promoting locally made IT products.
Conversely, the representatives of state-owned companies believe* that the new requirements will make them less competitive than private commercial organisations who are still able to buy any software, regardless of origin. According to these representatives, the banks and insurance companies are likely to be more adversely affected as they are more dependent on IT products.
The representatives of the Russian IT industry, in turn, have noted* that some domestic document management systems and customer relationship management systems, databases and banking software products are sufficiently competitive to be used by state-owned companies.
The relevant legislative changes, when adopted, should have a positive effect on Russian companies that provide services in the IT sector. Indeed, several of them have already registered their IT products in the Domestic Software Register (accessible here*), which is administered by the Russian Ministry of Communications and Mass Communications. Listing products in the register enables such companies to participate in the tenders for procurement of information systems for state and municipal customers, as well as for state-owned companies in the future. To date, over 1,800 IT products are listed in the register.
State agencies and state-owned companies are large consumers of IT products. Therefore, foreign companies that develop and make software products, as well as other IT market players providing related services in this sector, have to take into account that as a result of these initiatives, their activities in Russia may reduce considerably, as their operations will be exclusively limited to the private sector. A possible solution for affected companies could be to develop different forms of business cooperation with the Russian software manufacturers.
In our recent Practical Guide on Import Substitution in Russia, jointly developed with the Embassy of Switzerland and the Swiss Business Hub Russia, you can read more on localisation in general and in the IT sector in particular.
* In Russian