8 december 2011

Prime Minister Vladimir Putin holds a meeting on saving the Bogoslovsky Aluminium Plant and the Taganrog Automobile Plant


Vladimir Putins opening remarks:

Good afternoon,

As you know, during my recent meeting with the heads of public reception offices, some specific requests were made, several of which captured my attention because they concerned the destiny of major industrial enterprises. One of them is the Bogoslovsky Aluminium Plant, which employs about 3,300 people, and the other, the Taganrog Auto Plant, which employs about 4,500 people. Both are currently facing serious problems.

One problem, which unfortunately has been quite common lately, has to do with the fact that the aluminium plant was launched back in Soviet times (I believe it was launched in 1943) as part of a single complex with its own power plant. In the 1990’s, the single complex was dismantled and the power plant, which is an integral component of any aluminium production, became a separate entity. The power industry since that time has had a life of its own.     

I am not trying to blame anyone, but the electricity rates for the company have increased significantly from 1.45 roubles per 1 kWt to 2 roubles per 1 kWt. This was quite a tangible price hike for the aluminium company, which almost immediately began incurring losses. The power plant belongs to a company, owned by Mr Vekselberg, and on the whole, it operates in compliance with the existing regulations in Russia and in the Sverdlovsk Region.     

The tariffs are set by the Sverdlovsk regional authorities. I understand that they set them keeping in mind the needs of the regional energy sector as whole. But in doing so, they shouldn’t put some companies on the verge of bankruptcy, causing them to cease operations. Therefore, I have asked all colleagues who are present here to look into this situation and find a solution.   

Judging from what I see in the documents, the solution has been found. Essentially, you have already agreed on and provisionally signed two documents, including a comprehensive agreement between the region, the RUSAL Company, Mr Vekselberg’s company, the IES Holding, the Federal Grid Company, the IDGC Holding, the Ministry of Industry and Trade, and the Ministry of Energy. There are quite a few signatures, and I really hope that this document is not just a formality with meaningless signatures but a valid and efficient agreement, which will resolve the situation and allow the plant to restart its operations.      

We have agreed that the IDGC Holding, which deals with regional grids, will transfer this business, at least the grids part of it, to the Federal Grid Company (FGC).

The FGC will cover the costs of maintaining the grids. It’s not a great distance (about 1.5 km, as far as I understand), so it won’t cost much, but naturally, there are some costs involved. It is precisely the removal of these costs that the regional authorities should take into account in order to avoid placing grid maintenance costs on the companies. This is a special regulation of sorts, but in this case it is justified and needed if we want to save the plant. This is the first issue that needs to be resolved.   

Secondly, we have agreed that the IES Holding and RUSAL will sign a separate agreement, specifying the conditions for RUSAL’s acquisition of the power plant in question. Based on this agreement, RUSAL will be able to modernise the power plant (using cost-saving technology) and save jobs for employees. RUSAL has taken relevant commitments.      

Finally, I want to draw the regional authorities’ attention to the fact that the power plant uses local energy resources, yet another component of the overall operation. We need to ensure that prices are competitive. If the company is not able to do that, we still need to maintain jobs at the plant. Therefore, we should consider bringing in resources from elsewhere, although, there are also jobs at stake at the coal mine.

Here, too, we need to make a compromise, I want to ask the governor to carefully examine these issues together with colleagues and with the involvement of the trade unions, and to find a solution in this area, as well.

Finally, as far as TagAZ is concerned, the company employs 4,500 people and is quite efficient. The only issue that I see there is the insufficient level of production localisation. They have set up production with foreign partners, and as far as I know they have plans to launch two new models.   

All of this is very good, but they certainly need to increase the level of local content and modernise the facility. And I would like to request that the regional authorities and the governor carefully study the issues and lend their support to the company and its staff. 

We have agreed that creditors will address this issue once again and will make a decision to restructure the company’s debts. These debts were incurred during the economic downturn, when the company experienced difficulties with sales and had to cut production. According to this document, the company is ready to produce up to 300,000 vehicles and that’s what they should strive for. What’s your current output? Is it 28,000?  

Mikhail Paramonov (TagAZ Board Chairman): A little over 30,000, about 32,000.

Vladimir Putin: That’s a decent number. Your major partners are Korean companies, correct?

Mikhail Paramonov: Yes, the major partner is Korean, but there are also several…

Vladimir Putin: You need to work with them closely, bearing in mind the general requirements for the development of the Russian auto industry. We can’t afford not to increase extensively production localisation, especially in the production of key parts and components, including engines, transmissions, and paints and varnishes.  

This is a general requirement, and we certainly need to move in this direction, especially since we have certain agreements under the WTO framework. In any event, we will continue supporting the company. Clearly, during the economic downturn, you had to take loans at fairly high interest rates, which in today’s conditions are excessively high.

VTB bank has agreed to cut the interest rate in half and is ready to restructure your debt. But for me, the main point is that all these measures, aimed at revitalising the company and saving jobs, will not only help the company stay afloat, but will also create the necessary conditions for its further development and modernisation.  

This is also very important. In this case, we are also signing two agreements. These are the TagAZ-VTB agreement (you have already come to terms with other creditors) and the agreement between TagAZ, the Ministry of Industry and Trade, and the Rostov Region to cooperate on all those issues that I have mentioned above. 

I want to thank everyone for our joint efforts. The work was done professionally and in a very short timeframe. There should not be any complaints of arm-twisting, as there was none.     

On the contrary, it will be to everybody’s benefit if the companies are saved. And most importantly, people won’t lose their jobs and incomes. I believe virtually all documents have been agreed on and some have been already signed. Does anybody have any questions, concerns or suggestions regarding the agreements we have reached here?

Remark: No, Mr Putin.

Vladimir Putin: Is everything fine with the bank and the company?

Remark: Everything is fine.

Vladimir Putin: Who is representing the Bogoslovsky plant? Do you have any comments?

Vladislav Kazachkov (CEO, Bogoslovsky Aluminium Plant): No, I just want to thank you for your involvement on behalf of the plant’s employees. Thank you.

Vladimir Putin: Mr Vekselberg, are you satisfied with the terms of the deal?

Viktor Vekselberg (Board Chairman, Renova Group): We have agreed that Ernst & Young will provide an independent assessment, based on which the deal will be made.

Vladimir Putin: Yes, there should be a market assessment by a major foreign audit company.

Viktor Vekselberg: We have already made an arrangement with Ernst & Young.

Vladimir Putin: I believe Ernst & Young should satisfy everyone.

Who is representing the Sverdlovsk Region?

Anatoly Gredin (head of the government of the Sverdlovsk Region, acting governor): Head of the regional government. There are no comments.

Vladimir Putting: How is the governor’s health?

Anatoly Gredin: I have talked with him on the phone today. He is feeling much better and should be back to work by the end of the month.

Vladimir Putin: Please, send him my regards. I hope you have understood what I said. The fact that the power plant will be transferred from IDGC to FGC will require reviewing to a certain extent the load on other companies. And since the tariffs are set by the regional authorities, you will need to reflect this in your calculations. Do you have any concerns or suggestions with regard to this?

Anatoly Gredin: Yes, there are some concerns as we might be losing our investment funds. Therefore, I would like to request, Mr Putin, that you assign the regional government, Ministry of Energy, and the Federal Tariff Service to consider this issue and find a solution.  

Vladimir Putin: Yes, but you will have no expenditures. It is not that you will be simply deprived of your investment funds. You will not incur any costs for maintaining and modernising these grids. These expenses will be covered by other companies, meaning that you will lose these funds, but you won’t have any investments to make. But if there are some slight discrepancies, we can certainly discuss them. Do you have any other questions?

Thank you very much. Have a good day.