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Russian fuel and energy sector: digitising

Digitalisation has become one of the main trends in development of the society that is standing at the threshold of the sixth techno-economic paradigm. Enterprises of the fuel and energy sector tend to become highly engaged in implementing digital solutions in their production processes and thus are on the cutting edge of the technological know-how. Mikhail Nasibulin, Head of Digital Economy Projects Department of the Ministry for Digital Development, Communications and Mass Media of the Russian Federation, has told us how enterprises of the fuel and energy sector are being digitalised.

Russian fuel and energy sector: digitising

– Mikhail Mikhailovich, it was at the end of 2018 when the Digital Economy National Program was approved. What kind of potential does it hold for digitising oil and gas industry and what is being prioritised?

– Overall, when it comes to oil and gas industry, digitalisation normally goes in two directions: first, oil field exploration and development, and second, oil and gas processing and transportation. Most commonly, digital transformation within these two directions is related to implementing technologies of predictive analytics, introducing support systems for executive decision-making and using digital models and digital twins.

This work is given support within particular federal projects of the Digital Economy National Program. For example, the Digital Technology Federal Project allows for development of indigenous Russian solutions based on "end-to-end" digital technologies – artificial intelligence, virtual and augmented reality technology, robotics and sensorics, and many others. As part of another federal project, "Information Infrastructure", a global system of transmitting, processing and storing data is being developed, and it can be also used by enterprises in the industry.

– What are the main obstacles in developing digital economy, which you have to face?

– They can be divided in three main categories.

First of all, Russian companies which operate within traditional economic sectors generally show little or no interest in implementing digital technology. One of the crucial tasks set before us in this sphere is to develop some efficient schemes of stimulating demand for digital solutions on the part of industrial players. Some initial steps were made in this direction last year on the part of publicly owned companies – today, they are working on their personal strategies of digital technology development.

Secondly, lack of the necessary statutory and regulatory foundation under digital economy in Russia is still a certain hindrance and does not allow to regulate it effectively. As the state, we should set ultimately clear and transparent rules for all market players. A lot of work is being done in this sphere within a corresponding federal project called "Statutory regulation of the digital environment".

Thirdly, the level of competitiveness of the Russian digital solutions is rather low, and consequently, our market depends considerably on foreign products.

– Fair enough, Russia doesn't serve as a benchmark in the area of digital technology. Where exactly do you think Russian software products are placed in the global market? How competitive is the industry?

– Unfortunately, Russia is not yet among the leaders in the global IT sphere because the share of Russian companies in the world market is relatively small. In 2019, the Analytical Centre for the Government of the Russian Federation conducted a survey of market actors to define main problems and priorities in terms of digital transformation of the Russian fuel and energy sector. Participants mentioned high import dependency from server resources and software.

At the same time, our country has been steadily on the rise in the global ICT market over the last years against several indicators. According to the Analytical Centre for the Government of the Russian Federation, export of IT services from Russia accounted to 5.3 billion USD in 2018, and it is twice as high as the level of 2010 and 13% more than the amount of service export in 2017. A share of ICT services in the Russian overall export has risen significantly: from 5.3% in 2010 to 8.1% in 2018; in the first half of 2019, it was as high as 8.4%.

– What kind of interaction exists between the Ministry for Digital Development, Communications and Mass Media and the Ministry of Energy of the Russian Federation in digitising the oil and gas industry? What are areas of their common interest and mechanisms for cooperation?

– Of course, we are doing a lot of work together to bring in industry experts and have them orchestrate activities in the course of the national program. We are now on track to establish an interministerial consultative body on digital transformation within economic sectors of top priority and in social spheres, including the energy sector. We are expecting that representatives of both concerned federal executive authorities and industry experts will take part in its work. Along with the Ministry of Energy of the Russian Federation, we are simultaneously working on a plan of action to digitally transform the energy sector and on development of a method to evaluate digital changes in the industry. 

– At present, do we have successfully realised projects or projects under realisation to introduce indigenous Russian development results into enterprises of the oil and gas industry?

– Of course, we do. As an example, I could give the tNavigator software product by Rock Flow Dynamics LLC, which is used efficiently in more than 200 companies all around the world. The master module of this product is a hydrodynamic simulator, which is used for modelling processes of field development.

Another example could be the Prime system by Yandex Terra. That is fully functioning Russian-made software to interpretively process 2D/3D/4D/3C/4C seismic data, which complies with all the requirements for making up-to-date statements of work and includes a whole range of innovative algorithms to solve geophysical tasks.

Among Russian-made solutions for geological modelling, we should highlight "Geoplat — Pro" (GridPointDynamic Company), the "Designer Geology" module of the tNavigator software package (by Rock Flow Dynamics LLC) and the "Sphere.Geology" module (NC DIT Delta).

On top of that, indigenous Russian software from different developers is widely used by companies of the oil sector to monitor and keep track of oil and gas production.

– Bearing in mind these successful projects, how dependent is Russia from foreign-made digital technologies and are there areas where this dependency is close to full, in the fuel and energy sector in particular?

– Industry experts estimate that dependency from foreign-made software products in the oil and gas sector is around 80 to 90 per cent. At the same time, the volume of indigenous Russian software in the energy sector accounts for 286 billion roubles while an annual growth rate is expected to fluctuate between 6 and 10 per cent.

Our main goal for today is to reduce dependency from import of digital solutions in economic sectors. This might become crucial against the background of threats to business continuity of many large companies that are of critical importance for the Russian economy and lack of adjusting-to-scale industrial infrastructure to introduce and implement solutions that have been made on the basis of new types of software and equipment.

In 2016, in order to address the problem, a definition of the indigenous Russian software was legislatively formalised, the unified register of the Russian programs for electronic computers and databases was created, and it includes more than 6,000 software products divided in 24 categories. Then Decree of the Government of the Russian Federation No. 1236 dated November 16, 2015 was adopted, which banns admission of foreign-made software for public procurement. As a result, a purchase share of Russian-made software in the federal executive authority and executive agencies of state power in constituent entities increased from 25 to 65 per cent in the period between 2016 and 2018. The Ministry is currently monitoring data on import substitution in 2019. We can see that Russian-made software is mainly used even today in such categories as legal information systems (99.9%), means of antivirus protection (99.8%) and electronic workflow management systems (82%).

— Electronic workflow and antivirus protection constitute a huge share of the software market. However, there are other market segments where majors of the oil and gas industry prefer to work with foreign-made software. Do they switch willingly to Russian-made products and does this necessity really exist?

– In the Russian oil and gas industry, publicly-owned companies hold the top market share. Transition to using Russian-made software in these companies is slowed down because of some hindrances, which are related to adopting Russian software products in the well-arranged technological processes and to the need of training specialists to work with the new software.

Decrees of the Government of the Russian Federation to bolster these processes and increase efficiency of import substitution were adopted in at the end of 2018, and they suggest that publicly owned companies develop corporate road maps for the period of 2018-2020 to switch to using Russian-made software on a large scale.

As of November 1, 2019, 35 out of 50 road maps to switch to predominant use of indigenous Russian software had been approved by publicly owned companies. The Ministry of Communications of Russia orchestrates activity of publicly owned companies to establish software testing centres, which are capable of determining different approaches to implementing indigenous Russian software within industries. A preliminary review of the received action plans has shown that a purchase share of Russian-made software in publicly owned companies increased by 50.87 per cent in 2018.

It is a considerable move. What other actions does the Ministry take to develop the tech industry in Russia? Could you give us some more details on conditions, supporting measures, preferences, promotion schemes and so forth?

– Apart from the above-mentioned measures aiming at improved import substitution of digital solutions, one can indicate granting money on development of software and technological proposals for creating national information resources by means of distributed ledger technology. In addition, we launched a program on supporting measures for "end-to-end" digital technology in 2019. Start-ups and large companies which are involved in developing their own software and innovating the existing one can get a subsidy and invest it in technological improvement. Five operators providing supporting measures announced contests, decided on the winners, and now we are waiting for the realisation of these projects. The contests were organised in six different disciplines:

  • support of projects on design and commercialisation of software products and digital platforms in manufacturing industry (RF Government Decree No. 529 dated April 30, 2019, the operator is the Ministry of Industry and Trade of the Russian Federation; a subsidy of up to 50 per cent of the cost of a product development);
  • support of projects on implementation of indigenous Russian software in industries of top priority and potential and a possibility of in-industry replicating (RF Government Decree No. 555 dated May 3, 2019, the operator is Skolkovo Fund; maximum amount of a subsidy is 1 billion roubles);
  • support of projects on replicating regionally Russian-made solutions of high social and economic importance for a territorial entity of the Russian Federation (RF Government Decree No. 550 dated May 3, 2019, the operator is Russian Fund for Development of Information Technology (RFRIT); maximum amount of a subsidy is 1 billion roubles);
  • support of R&D centres which carry out research and development work aimed at achieving target indicators in development of end-to-end digital technologies (RF Government Decree No. 551 dated May 3, 2019, the operator is JSC "RVC"; maximum amount of a subsidy is 300 million roubles);
  • support of Russian leading companies which develop and commercialise indigenous Russian solutions based on end-to-end digital technology (RF Government Decree No. 549 dated May 3, 2019, the operator is JSC "RVC"; maximum amount of a subsidy is 250 million roubles);
  • support of smaller enterprises which implement projects on design and commercialisation of end-to-end digital technology (RF Government Decree No. 554 dated May 3, 2019, the operator is Innovation Promotion Fund; maximum amount of a subsidy is 5 million roubles under Start Program and 20 million roubles under Development Program);
  • complex projects in the area of end-to-end digital technology have been supported through preferential loans since that year. This particular supporting measure has been highly rated by market players; support will be provided during several years and with participation of leading banks of Russia (RF Government Decree No. 1598 dated December 5, 2019, the operators are authorised banks; a discounted loan rate for projects in the area of end-to-end digital technology is from 1 to 5 per cent for a 6-year term).

The system will be changed in 2020. For instance, another two supporting measures are brought into action starting this year – these are supporting measures on implementation of end-to-end digital technology and platform solutions driven by preferential finance lease (the operator is State Transport Leasing Company) as well as a supporting fund for direct investments in projects on end-to-end digital technology development at the growth stage (the operator is State Corporation Rosnanotech).

Besides, as part of the Digital Technology Federal Project, the Ministry has come up with recommended practice in digital transformation of publicly owned companies, which was approved by the executive committee of the Government Panel in December (the Government Panel on digital development, use of information technology for improving the quality of life and conditions for entrepreneurial activities). We hope that our recommendations help publicly owned companies to build a foundation and prepare strategic documents on digital transformation.

– Does the Ministry have any suggestions to promote Russian tech companies into foreign markets? Where could Russian R&D be in demand? How could we get those markets interested?

– On the whole, the volume of foreign sales of Russian software companies is rising steadily. As experts say, Russia managed to achieve a volume of 10.5 billion dollars following the results of the year 2018. Compared to the previous year, it is a growth by 19 per cent.

Today's low market share of Russian suppliers is caused, to a certain extent, by problems while preparing the end product for selling and marketing. Many companies are trying to introduce not end products but separate technical services and developments into foreign markets. The competitiveness rate in foreign markets is traditionally high, and if Russian companies do not have a structured marketing policy to promote their solutions, this results in their attempts to frequently become less successful.

A systemic approach could help in solving this problem and increasing recognisability, developing a global brand and building of trust in products of Russian tech companies. The state has a special focus on financial supporting measures, including project financing, investments, preferential loans. Alongside financial assistance, the state gives a sheer marketing support to companies – support in sales, extending points of presence abroad. In doing so, a new operator, JSC Rosinfocominvest, was established, and its goal is to provide systemic support, promotion and sales of Russian IT solutions abroad. It focuses on systemic support of export of digital solutions and services via networking, formation of international assessment and analytics of top quality.

Some companies in Russia have already achieved good results in developing their brands in global markets. In the first place, we are talking here about Russian "Kaspersky's Antivirus" and Dr Web packages, solutions on InfoWatch cybersecurity, Group-IB products. Again, I would like to emphasise that Russia is one of the few countries which has its own R&D results in the area of search engines, social networking and operational systems.

When playing globally, a particular attention should be paid to the developing markets of Latin America, Africa, Asia and the Middle East, where interest in Russian technology is historically high.

– When it comes to Russia, which industry is the most digitalised, from your point of view, at the moment?

– The highest level of digitalisation is typical of ICT and financial sectors. These industries get within touching distance of the world's level of digitalisation. The ICT sector (telecommunication, production of ICT equipment) is the key tool and basis for development of digital economy of the country. As experts say, the volume of gross added value within the sector rose to 2.4 trillion roubles by 2018 (the growth by 20 per cent compared to the year 2015). On the other hand, the rate of financial technology proliferation in the country was 82 per cent in 2019. Digital banking became most widely developed, and the highest indicators are shown in the area of daily services (payment management, transactions, use of banking cards). I would like to make a specific mention that functionality of mobile applications of the largest Russian banks is 1.5 or 2 times better than the equivalent ones of European banks.

As for industries of the Russian energy sector, the leading role is assigned to electric power industry, which is due to particular characteristics of the industry operation. Digital technology is introduced in all the segments of the industry (generation, transmission and distribution, as well as electric power supply). In terms of speed of digital technology implementation, the electric power industry is followed by the oil and gas industry in Russia. In the context of constantly deteriorating conditions for hydrocarbons production (share growth of hard-to-recover reserves and reserves in remote territories), the use of digital technology is becoming an integral part of competitiveness of an oil and gas company. Coal mining is the most conventional segment of the Russian energy sector in terms of digital transformation. However, digital technology is being implemented in coal producers as well.

– Issues of cybersecurity are quite sensitive for large companies. What is done in this direction?

– Main principles of information security are based on maximum self-sufficiency of information technology. Within the Information Security Federal Project of the Digital Economy National Program, a national certification centre, which will guarantee safe operation of gadgets in the Russian Internet, is being established. The centre will provide TLS Certificates (trust certificates) for identification of information resources, it will also ensure work of citizens and state authorities through security protocols supported by Russian cryptographic algorithms. In the course of the federal project, the Centre for Public System of Detection, Prevention and Relief of Consequences of Computer Attacks (GosSOPKA) is being made, as well as a cyber range, which will ensure information security, prevent threats in the IT sphere and train professionals to deal with modern practices of information security. To cut things short, key focus areas in terms of information security are related to providing security of the Russian Internet, personal data security and security analysis of cyber-physical systems, including the Internet of things.

– How do you think the job market for specialists engaged in oil production will change?

– Implementation of new digital solutions influences the job market significantly and sets new requirements to specialists in the industry and shapes new in-demand professions.

When it comes to the energy sector, industrial automation, on the one hand, allows for downsizing a number of specialists of conventional professions; on the other hand, demand for specialists with digital competences, such as big data analytics and processing, robotics, unmanned aerial vehicle exploitation, programming and 3D-modelling. As experts estimate, new occupations, such as UAV operators for oil and gas field development, architects of robotic complexes and cyber devices, ecological analysts and others will appear in the oil and gas industry over the next decade.

The lack of industry specialists causes a current delay in realisation of digital transformation plans in the energy sector, and it requires the Russian system to train skilled workers and to establish new methodological, technical and organisational disciplines and opportunities in providing advanced development of workforce capacity in the oil and gas sector.

 In order to solve this problem, the "Workforce for Digital Economy" Federal Project, which is aimed at educational system improvements, job market transformation and citizens' inclusion in development of the Russian digital economy. The federal project focuses to a great extent on increasing the population's E-literacy, training skilled workers and executives, who might be in charge of digital transformation of companies.

– The huge country of ours has settlements and whole regions where there are no roads or essential infrastructure, where gas is not laid. Do you think Russia is generally ready for large-scale digitalisation or is it not the task for the time being?

– The Ministry is orchestrating works on providing multi-purpose services to people. At the same time, more than 20 thousand settlements with a population of 100 to 250 people cannot get access to the up-to-date communication services. The Ministry of Communications has elaborated corresponding amendments to the federal law "On Communication", and they suggest providing services in settlements with a population from 100 people (not 250 people as it is now).

This section of the Digital Economy National Program calls for activities to create stable and safe infrastructure for high-speed data transmission and processing, as well as storing large amounts of data. According to target indicators, a share of households which have broadband access to the Internet should be at least 97 per cent from the total quantity in 2024, and a share of socially significant facilities of the infrastructure, that can be connected to the Internet, should be 100 per cent.

Digital technology is treading in leaps and bounds, no one can easily copy or imitate technology to match the spirit of times; we must be well ahead of our competitors. What do you think the chances of the Russian tech industry are to take up a position that will allow Russian software products to be of top priority for leading Russian and global companies?

– Russia already has its own competitive software products, that can be applied by companies in different economic sectors – these are accounting and information systems, engineering and telecommunication solutions.

When it comes to the energy sector, Russian developers are gradually creating and implementing programs for process management of exploration surveys, evaluation of oil and gas reserves, field development and exploitation. The government policy on import substitution corresponds to the increase in Russian IT development, and some Russian-made software products are becoming prioritised for Russian oil companies in the energy sector.

To keep the positive dynamics of using Russian software products in companies, the Ministry is doing its best to give support to design and implementation of digital technology in order to fundamentally re-think the actual structure and transformation of all business processes within the industry.

The successfully implemented measures on stimulating the Russian IT industry are as follows:

  • advanced measures of government support for projects that design and develop innovative solutions in the area of digital technology;

  • methodological recommendations on digital transformation of government-owned corporations and publicly owned companies that were approved on December12, 2019 by the executive committee of the Government Panel on digital development, use of information technology for improving the quality of life and conditions for entrepreneurial activities;

  • compiling unified register of the Russian programs for electronic computers and databases;

  •  adoption of the Decree on phased transition of government-owned companies to the use of indigenous Russian software.

In such a case, the Ministry is carrying out activities along with its field-oriented federal executive authority, Ministry of Energy of the Russian Federation. These activities are aimed at implementing new financial and non-financial measures to support significant projects in the industry. 


Mikhail Mikhailovich Nasibulin, Head of Digital Economy Projects Department of Ministry for Digital Development, Communications and Mass Media of the Russian Federation

Статья «Russian fuel and energy sector: digitising» опубликована в журнале «Neftegaz.RU» (№4, 2020)