Nearly 8000 companies (no more than 10% are large or medium-sized) owning almost 7% of all of the country's industrial capital assets work in the chemical and petrochemical industries in Russia. Based on results for 2003, the industry accounted for 5.8% of total industrial output, and manufactured products worth more than 400 billion rubles. For comparison, the chemical industry generally supplies about 15-22% of production in developed countries (EU, United States, Japan, Canada) and more than 19% in China.
Moreover, growth of the Russian chemical industry has been steadily slowing in the last five years. According to data from the State Statistics Committee (Goskomstat), production increases were 24% in 1999 and 15% in 2000, and then fell sharply to 5% in 2001 and 1.6% in 2002. Company profit margins fell simultaneously – from 22.5% in 1999 to 12.5% in 2002. The situation improved slightly last year, when production increased by 4.4%. However, depreciation of the industry's capital assets presently exceeds 60%; and in some facilities, this figure reaches 90%.
Criminal History
Yakov Goldovsky, founder, president, and co-owner of the leading Russian petrochemical holding, SIBUR Corporation (AK SIBUR), was forced to follow in the footsteps of Vladimir Gusinsky during Putin's presidency. The change of power at SIBUR came about in much the same way as at Most [Vladimir Gusinsky's media holding], but with an eighteen-month lag. The delay is easily explained. First, in 2000-2001, SIBUR continued to collect assets and during this time actually formed the holding's chemical division with sales of more than $1 billion (prior to this, the holding's key companies had been 11 gas processing facilities). Second, it was only in May 2001 that the government replaced the head of Gazprom, Rem Vyakhirev, who was Yakov Goldovsky's partner, with St. Petersburg native Aleksi Miller, the president's protege.
After that, SIBUR's plan to attract funds through an additional share issue of $2 billion devised in 2000 rapidly began to fall apart. Gazprom's new management (Gazprom owned 50.66% of SIBUR's shares) turned to the Prosecutor General's Office to stop actions of the holding's management that were “causing damage to shareholders and creditors”. Aleksandr Ryazanov, the deputy chairman of Gazprom's board who arrived at the company with Aleksei Miller, is said to have played no small role in initiating the prosecution of SIBUR's senior managers. He had some old scores to settle with Yakov Goldovsky for firing him from the Surgut Gas Processing Plant (Surgutsky GPZ). The law enforcement agencies acted swiftly, arresting Goldovsky and his partner Evgeny Koshchits in January 2002.
However, they still got off fairly lightly, spending only a little more than six months in Butyrskaya Prison and even receiving a certain amount of monetary compensation for lost business. By September, the adversaries had reached an agreement. Under the terms of the agreement, Gazprom bought SIBUR member-company shares not directly owned by the holding and securities of SIBUR itself from the holding's ex-managers. According to official reports, the deal was worth nearly $200 million.
Meanwhile, SIBUR was in a fever. The holding had been without full-time leadership for six months; it had gone through three presidents, sales had fallen by half, and numerous creditors had started demanding payment of debts. Dmitry Mazenpin, who became head of the holding in June 2002, managed to keep it afloat. The matter of the additional share issue was postponed, debts to banks and Gazprom were restructured, and sales began to revive.
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However, Mazepin, who had replaced SIBUR's entire management team, once again led the holding in a direction dangerous for Gazprom by trying to distance it technically from the company. Oil companies began supplying an increasingly larger share of raw materials to SIBUR. Furthermore, Mazepin was able to communicate with Putin directly, bypassing Miller. This latter factor played a key role in his dismissal. Mazepin left SIBUR in February 2003, and several months later, all the managers close to him left the company as well. Aleksandr Dyukov, another St. Petersburg native completely loyal to Miller, became president of SIBUR.
As a result, Gazprom gained full control over SIBUR; even hiring at the holding was done only with the approval of the board of directors, and all trade flows went to Gazexport. To be sure, the return of SIBUR's assets dragged on for two years. Gazprom only recently succeeded in finally getting its hands on the shares of all the holding's companies and more than 90% of the shares of SIBUR itself.
Gazprom was less successful in reestablishing control over the Azot Agrochemical Corporation (AKhK Azot), one of Russia's largest fertilizer manufacturers. The gas monopolist had lost Azot through the efforts of the ex-head of Mezhregiongaz, Nikolai Gornovsky, who had been placed in the job by Aleksei Miller himself. After Gornovsky left in February 2003, Azot passed to businessman Georgy Briling. As a result, Gazprom managed to recover only 40.12% of Azot's shares and bought another 7.24% from Boris Titov's company Solvalub. Meanwhile, 52.64% of Azot's shares remain with Neftegazbank, to whom Briling sold them, and Gazprom is continuing its attempts to take 6% of Azot's shares from the new owner through the courts.
National History
Two national chemical empires within Russia – in Bashkortostan and Tatarstan – were basically formed even before Vladimir Putin's election as president of the country. They traditionally kept aloof from other industry participants and developed according to their own laws. It is significant that up to now both have preserved their scale, integrity, and state control.
The Tatar chemical group (accounts for nearly 10% of Russian chemical and petrochemical production) was formed mainly around Tatneft, and management of it is coordinated through Tatneftekhiminvest Holding. Back in the mid-1990s, the government of Tatarstan created very favorable conditions for the industry, which produces more than half of all marketable commodities in the republic and employs a third of its production personnel. The companies were granted tax and excise concessions and low energy prices.
However, the government kept the industry on a short leash. For example, in 2000, it passed the decree “On Measures for the Efficient Use of Hydrocarbon Resources in the Petrochemical Complex of the Republic of Tatarstan”, which restricted exports from the republic. As a result, not only sales of oil and most petroleum products, but also the operations of the region's largest companies came under full government control. The family and close associates of Tatarstan's long-serving president, Mintimer Shaimiev, unobtrusively brought the main industry participants under their personal control through OAO Tatar-American Investments and Finances (TAIF)
Local authorities have strengthened their positions in the industry over the past four years. Nizhnekamskneftekhim (NKNKh), Nizhnekamskshina, and even Efremovkauchuk in Tula Region, became firmly fixed in the Tatneft empire. Attempts by individual members (e.g., NKNKh) to become independent players, as well as attempts by Russia-wide companies like YUKOS to become large-scale owners of Tatarstan's chemical companies in 2000-2001, were successfully quashed. The federal authorities did nothing to hinder this or support aspirants to the republic's chemical industry complex.
Of course, even Tatarstan could not avoid a certain amount of destabilization in the lead-up to the presidential elections of 2004. In fall 2003, a minority shareholder of Kazanorgsintez and Tatneft, the offshore company Newport Capital, filed a suit against the government of Tatarstan demanding that the decree establishing the Svyazinvestneftekhim Holding – the owner of state shareholdings in 18 companies – be declared illegal. But the Tatarstan Arbitration Court turned Newport down. In February, on the very eve of the elections, Duma
President of Bashkortostan Murtaza Rakhimov was not as lucky – during last year's dispute with Moscow he nearly lost both his job and his industrial assets. It was already clear in the summer of 2000 that Rakhimov's position was unstable. That was when he issued special decrees allowing the sale of shares of large fuel-and-energy and petrochemical companies in Bashkortostan, in particular, the Bashneftekhim Holding, which owned shares in the Ufa Oil Refinery (Ufimsky NPZ), Novoil, Ufaneftekhim, AO Ufaorgsintez, and Ufakhimprom, as well as the Bashkir Fuel Company (Bashkirskaya toplivnaya kompaniya), which controlled Bashneftekhim and owned shares of Bashneft, Bashkirenergo, Uralsibnefteprovod, and Uraltransnefteprodukt.
Before that, the republic's petrochemical market was considered closed to outside investors and the president's son, Ural Rakhimov, controlled Bashneftekhim. The revolutionary decision meant that Murtaza Rakhimov was being forced to give up the companies, was looking for an influential partner and ally, or was getting ready to privatize the industry before being removed from office. Mezhprombank and LUKOIL were named as real contenders for the republic's petrochemical assets. The management of both organizations had previously worked with the president of Bashkortostan. However, Rakhimov's main rivals in the presidential elections held in Bashkortostan in December 2003 were ex-manager of Mezhprombank Sergei Veremeenko and former LUKOIL vice president Ralif Safin.
The outcome of the Bashkortostan elections remained unclear throughout the spring of 2003. The federal authorities pointedly deprived Rakhimov of a number of privileges relating to control of the companies (particularly in the areas of resource use and taxation of oil refineries). In addition, the tax authorities announced claims against a number of chemical companies in the republic. In an attempt to win the favor of the Russian president, the president of Bashkortostan returned a controlling block of shares in Salavatnefteorgsintez, one of the largest local chemical companies, to Gazprom's control and also promised the latter Kauchuk and Kaustik in Sterlitakamsk. The management structure of the petrochemical plants was swiftly changed: by August, the state holdings in Bashneft, Bashnefteprodukt, and three oil refineries belonging to Bashneftekhim were added to the charter capital of OOO Bashkir Capital. Industry experts advanced opposing theories: either Rakhimov was concealing assets in anticipation of losing office or he had exchanged control over them for another presidential term. Rakhimov won the elections in December 2003. There is still no word about a change of ownership of Bashkir petrochemical companies.
Export History
The Russian chemical industry had largely reoriented itself from the domestic to the foreign market by the mid-1990s. The increase in export share was especially significant for fertilizer manufacturers. Meanwhile, President Putin's first term coincided with serious problems on international markets. World prices for fertilizer were falling; and one after another, importing countries were introducing various protectionist measures against Russian products.
By that time, most large companies in the industry had already found their present owners – Evrokhim Mineral Fertilizer Corporation (MKhK Evrokhim; part of MDM Group), AKhK Azot (closely connected with Fosagro Group, a YUKOS shareholder), Vyacheslav Kantor's Akron Holding, Dmitry Rybololev's Uralkalii, and an number of smaller organizations had divided the assets among themselves. In the past four years, there has been no major redistribution of spheres of influence and no new, large-scale owner has appeared.
Fosagro finally consolidated its grip on Ammofos (Vologda Region) and Azot (Cherepovets). One of the last large acquisitions on the market occurred in 2002 when Evrokhim got control over Azot in Novomoskovsk. After that, Evrokhim began actively restructuring the assets and putting them in order, which industry experts regarded as a clear sign of preselling. Rumors that Evrokhim was about to change owners circulated all of last year, but nothing has been confirmed so far. The only remaining large disputed asset, not counting the conflict between Gazprom and Neftegazbank for control of AKhK Azot, is the Kirov-Chepets Chemical Plant (KChKhK). Formally, it still belongs to AKhK Azot, but most of the company's shares have passed from Georgy Briling to ex-head of SIBUR Dmitry Mazepin.
In the absence of redistribution of property or problems with the market situation, fertilizer manufacturers concentrated their efforts on marketing policy by actively trying to strengthen their position on export markets and lobbying for their interests on the international scene in partnership with officials of the Ministry of Economic Development and Trade (MERT). Evrokhim's efforts along this line were especially notable. The company sent hundreds of pages of documents to the ministry (calculations, research, and studies) and scored several important victories. For example, owing to Evrokhim's efforts, the US Department of Commerce halted an antidumping investigation of imports of a popular fertilizer – carbamide-ammonia mix. Russian suppliers were able to return to the US markets, even if under rather strict delivery quotas. Six months later, MERT responded to the imposition of import duties on Russian ammonium nitrate in the Czech Republic by threatening to impose special duties on imports of Skoda cars into Russia. “Czech suppliers have to lose as much as Evrokhim!” – they said indignantly at the ministry.
In April of this year, Minister of Economic Development and Trade German Gref personally negotiated an easing of restrictions for domestic fertilizer manufacturers after the entry of the new member countries to the EU with the chairman of the EU Trade Commission, Pascal Lamy. The lucky ones who will get to export their products to the EU under special conditions are Evrokhim, Akron, Uralkalii, and Silvinit.
Fertilizer manufacturers who were less successful in working with MERT and who could not count on any improvement in the export situation gambled on patriotism and the Ministry of Agriculture. A number of companies, e.g., Fosagro, announced last year that they were redirecting supplies to the domestic market. AKhK Azot recently joined them after a failed attempt to maintain delivery volumes to Europe.
deputy Viktor Ilyukhin asked the Russian government and the Prosecutor General's Office to examine the legality of the formation of TAIF, but this investigation drowned in the waves of administrative reform. A dispute over 18.2% of NKNKh's shares that broke out at the beginning of the year is still limping along, but it is unlikely to lead to a change of control over the company. Nevertheless, it is clear that a significant increase in fertilizer production and sales through exports is no longer possible. As a result, all manufacturers, and not just fertilizer manufacturers, will inevitably have to turn to developing the domestic market. Similar trends are also being observed in the production of polymers and a number of other products.
Via: Kommersant
Moreover, growth of the Russian chemical industry has been steadily slowing in the last five years. According to data from the State Statistics Committee (Goskomstat), production increases were 24% in 1999 and 15% in 2000, and then fell sharply to 5% in 2001 and 1.6% in 2002. Company profit margins fell simultaneously – from 22.5% in 1999 to 12.5% in 2002. The situation improved slightly last year, when production increased by 4.4%. However, depreciation of the industry's capital assets presently exceeds 60%; and in some facilities, this figure reaches 90%.
History: 2000-2004
The distribution of forces in the Russian chemical and petrochemical industries has not changed significantly in the last four years: about half of the assets are firmly distributed among major raw material suppliers. President Vladimir Putin's next term should be marked by the appearance of at least some government policy in the industry.Criminal History
Yakov Goldovsky, founder, president, and co-owner of the leading Russian petrochemical holding, SIBUR Corporation (AK SIBUR), was forced to follow in the footsteps of Vladimir Gusinsky during Putin's presidency. The change of power at SIBUR came about in much the same way as at Most [Vladimir Gusinsky's media holding], but with an eighteen-month lag. The delay is easily explained. First, in 2000-2001, SIBUR continued to collect assets and during this time actually formed the holding's chemical division with sales of more than $1 billion (prior to this, the holding's key companies had been 11 gas processing facilities). Second, it was only in May 2001 that the government replaced the head of Gazprom, Rem Vyakhirev, who was Yakov Goldovsky's partner, with St. Petersburg native Aleksi Miller, the president's protege.
After that, SIBUR's plan to attract funds through an additional share issue of $2 billion devised in 2000 rapidly began to fall apart. Gazprom's new management (Gazprom owned 50.66% of SIBUR's shares) turned to the Prosecutor General's Office to stop actions of the holding's management that were “causing damage to shareholders and creditors”. Aleksandr Ryazanov, the deputy chairman of Gazprom's board who arrived at the company with Aleksei Miller, is said to have played no small role in initiating the prosecution of SIBUR's senior managers. He had some old scores to settle with Yakov Goldovsky for firing him from the Surgut Gas Processing Plant (Surgutsky GPZ). The law enforcement agencies acted swiftly, arresting Goldovsky and his partner Evgeny Koshchits in January 2002.
However, they still got off fairly lightly, spending only a little more than six months in Butyrskaya Prison and even receiving a certain amount of monetary compensation for lost business. By September, the adversaries had reached an agreement. Under the terms of the agreement, Gazprom bought SIBUR member-company shares not directly owned by the holding and securities of SIBUR itself from the holding's ex-managers. According to official reports, the deal was worth nearly $200 million.
Meanwhile, SIBUR was in a fever. The holding had been without full-time leadership for six months; it had gone through three presidents, sales had fallen by half, and numerous creditors had started demanding payment of debts. Dmitry Mazenpin, who became head of the holding in June 2002, managed to keep it afloat. The matter of the additional share issue was postponed, debts to banks and Gazprom were restructured, and sales began to revive.
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However, Mazepin, who had replaced SIBUR's entire management team, once again led the holding in a direction dangerous for Gazprom by trying to distance it technically from the company. Oil companies began supplying an increasingly larger share of raw materials to SIBUR. Furthermore, Mazepin was able to communicate with Putin directly, bypassing Miller. This latter factor played a key role in his dismissal. Mazepin left SIBUR in February 2003, and several months later, all the managers close to him left the company as well. Aleksandr Dyukov, another St. Petersburg native completely loyal to Miller, became president of SIBUR.
As a result, Gazprom gained full control over SIBUR; even hiring at the holding was done only with the approval of the board of directors, and all trade flows went to Gazexport. To be sure, the return of SIBUR's assets dragged on for two years. Gazprom only recently succeeded in finally getting its hands on the shares of all the holding's companies and more than 90% of the shares of SIBUR itself.
Gazprom was less successful in reestablishing control over the Azot Agrochemical Corporation (AKhK Azot), one of Russia's largest fertilizer manufacturers. The gas monopolist had lost Azot through the efforts of the ex-head of Mezhregiongaz, Nikolai Gornovsky, who had been placed in the job by Aleksei Miller himself. After Gornovsky left in February 2003, Azot passed to businessman Georgy Briling. As a result, Gazprom managed to recover only 40.12% of Azot's shares and bought another 7.24% from Boris Titov's company Solvalub. Meanwhile, 52.64% of Azot's shares remain with Neftegazbank, to whom Briling sold them, and Gazprom is continuing its attempts to take 6% of Azot's shares from the new owner through the courts.
National History
Two national chemical empires within Russia – in Bashkortostan and Tatarstan – were basically formed even before Vladimir Putin's election as president of the country. They traditionally kept aloof from other industry participants and developed according to their own laws. It is significant that up to now both have preserved their scale, integrity, and state control.
The Tatar chemical group (accounts for nearly 10% of Russian chemical and petrochemical production) was formed mainly around Tatneft, and management of it is coordinated through Tatneftekhiminvest Holding. Back in the mid-1990s, the government of Tatarstan created very favorable conditions for the industry, which produces more than half of all marketable commodities in the republic and employs a third of its production personnel. The companies were granted tax and excise concessions and low energy prices.
However, the government kept the industry on a short leash. For example, in 2000, it passed the decree “On Measures for the Efficient Use of Hydrocarbon Resources in the Petrochemical Complex of the Republic of Tatarstan”, which restricted exports from the republic. As a result, not only sales of oil and most petroleum products, but also the operations of the region's largest companies came under full government control. The family and close associates of Tatarstan's long-serving president, Mintimer Shaimiev, unobtrusively brought the main industry participants under their personal control through OAO Tatar-American Investments and Finances (TAIF)
Local authorities have strengthened their positions in the industry over the past four years. Nizhnekamskneftekhim (NKNKh), Nizhnekamskshina, and even Efremovkauchuk in Tula Region, became firmly fixed in the Tatneft empire. Attempts by individual members (e.g., NKNKh) to become independent players, as well as attempts by Russia-wide companies like YUKOS to become large-scale owners of Tatarstan's chemical companies in 2000-2001, were successfully quashed. The federal authorities did nothing to hinder this or support aspirants to the republic's chemical industry complex.
Of course, even Tatarstan could not avoid a certain amount of destabilization in the lead-up to the presidential elections of 2004. In fall 2003, a minority shareholder of Kazanorgsintez and Tatneft, the offshore company Newport Capital, filed a suit against the government of Tatarstan demanding that the decree establishing the Svyazinvestneftekhim Holding – the owner of state shareholdings in 18 companies – be declared illegal. But the Tatarstan Arbitration Court turned Newport down. In February, on the very eve of the elections, Duma
President of Bashkortostan Murtaza Rakhimov was not as lucky – during last year's dispute with Moscow he nearly lost both his job and his industrial assets. It was already clear in the summer of 2000 that Rakhimov's position was unstable. That was when he issued special decrees allowing the sale of shares of large fuel-and-energy and petrochemical companies in Bashkortostan, in particular, the Bashneftekhim Holding, which owned shares in the Ufa Oil Refinery (Ufimsky NPZ), Novoil, Ufaneftekhim, AO Ufaorgsintez, and Ufakhimprom, as well as the Bashkir Fuel Company (Bashkirskaya toplivnaya kompaniya), which controlled Bashneftekhim and owned shares of Bashneft, Bashkirenergo, Uralsibnefteprovod, and Uraltransnefteprodukt.
Before that, the republic's petrochemical market was considered closed to outside investors and the president's son, Ural Rakhimov, controlled Bashneftekhim. The revolutionary decision meant that Murtaza Rakhimov was being forced to give up the companies, was looking for an influential partner and ally, or was getting ready to privatize the industry before being removed from office. Mezhprombank and LUKOIL were named as real contenders for the republic's petrochemical assets. The management of both organizations had previously worked with the president of Bashkortostan. However, Rakhimov's main rivals in the presidential elections held in Bashkortostan in December 2003 were ex-manager of Mezhprombank Sergei Veremeenko and former LUKOIL vice president Ralif Safin.
The outcome of the Bashkortostan elections remained unclear throughout the spring of 2003. The federal authorities pointedly deprived Rakhimov of a number of privileges relating to control of the companies (particularly in the areas of resource use and taxation of oil refineries). In addition, the tax authorities announced claims against a number of chemical companies in the republic. In an attempt to win the favor of the Russian president, the president of Bashkortostan returned a controlling block of shares in Salavatnefteorgsintez, one of the largest local chemical companies, to Gazprom's control and also promised the latter Kauchuk and Kaustik in Sterlitakamsk. The management structure of the petrochemical plants was swiftly changed: by August, the state holdings in Bashneft, Bashnefteprodukt, and three oil refineries belonging to Bashneftekhim were added to the charter capital of OOO Bashkir Capital. Industry experts advanced opposing theories: either Rakhimov was concealing assets in anticipation of losing office or he had exchanged control over them for another presidential term. Rakhimov won the elections in December 2003. There is still no word about a change of ownership of Bashkir petrochemical companies.
Export History
The Russian chemical industry had largely reoriented itself from the domestic to the foreign market by the mid-1990s. The increase in export share was especially significant for fertilizer manufacturers. Meanwhile, President Putin's first term coincided with serious problems on international markets. World prices for fertilizer were falling; and one after another, importing countries were introducing various protectionist measures against Russian products.
By that time, most large companies in the industry had already found their present owners – Evrokhim Mineral Fertilizer Corporation (MKhK Evrokhim; part of MDM Group), AKhK Azot (closely connected with Fosagro Group, a YUKOS shareholder), Vyacheslav Kantor's Akron Holding, Dmitry Rybololev's Uralkalii, and an number of smaller organizations had divided the assets among themselves. In the past four years, there has been no major redistribution of spheres of influence and no new, large-scale owner has appeared.
Fosagro finally consolidated its grip on Ammofos (Vologda Region) and Azot (Cherepovets). One of the last large acquisitions on the market occurred in 2002 when Evrokhim got control over Azot in Novomoskovsk. After that, Evrokhim began actively restructuring the assets and putting them in order, which industry experts regarded as a clear sign of preselling. Rumors that Evrokhim was about to change owners circulated all of last year, but nothing has been confirmed so far. The only remaining large disputed asset, not counting the conflict between Gazprom and Neftegazbank for control of AKhK Azot, is the Kirov-Chepets Chemical Plant (KChKhK). Formally, it still belongs to AKhK Azot, but most of the company's shares have passed from Georgy Briling to ex-head of SIBUR Dmitry Mazepin.
In the absence of redistribution of property or problems with the market situation, fertilizer manufacturers concentrated their efforts on marketing policy by actively trying to strengthen their position on export markets and lobbying for their interests on the international scene in partnership with officials of the Ministry of Economic Development and Trade (MERT). Evrokhim's efforts along this line were especially notable. The company sent hundreds of pages of documents to the ministry (calculations, research, and studies) and scored several important victories. For example, owing to Evrokhim's efforts, the US Department of Commerce halted an antidumping investigation of imports of a popular fertilizer – carbamide-ammonia mix. Russian suppliers were able to return to the US markets, even if under rather strict delivery quotas. Six months later, MERT responded to the imposition of import duties on Russian ammonium nitrate in the Czech Republic by threatening to impose special duties on imports of Skoda cars into Russia. “Czech suppliers have to lose as much as Evrokhim!” – they said indignantly at the ministry.
In April of this year, Minister of Economic Development and Trade German Gref personally negotiated an easing of restrictions for domestic fertilizer manufacturers after the entry of the new member countries to the EU with the chairman of the EU Trade Commission, Pascal Lamy. The lucky ones who will get to export their products to the EU under special conditions are Evrokhim, Akron, Uralkalii, and Silvinit.
deputy Viktor Ilyukhin asked the Russian government and the Prosecutor General's Office to examine the legality of the formation of TAIF, but this investigation drowned in the waves of administrative reform. A dispute over 18.2% of NKNKh's shares that broke out at the beginning of the year is still limping along, but it is unlikely to lead to a change of control over the company.
Via: Kommersant
