21 january 2009

Prime Minister Vladimir Putin held a meeting with Economic Development Minister Elvira Nabiullina and Norilsk Nickel (GMKN) CEO Vladimir Strzhalkovsky

The meeting focused on the current situation in Norilsk Nickel, its effect on the social sphere, and a proposal to abolish export duties on nickel as well as significantly reduce or abolish duties on several types of copper and copper alloys

Transcript of the beginning of the meeting:

Vladimir Putin: Go ahead, please. As far as I understand, you would like to discuss recent developments at your company, and the situation in production and the social sphere.

Vladimir Strzhalkovsky: Mr Prime Minister, unfortunately, due to a fall in metals prices caused by the financial world crisis our company and non-ferrous metallurgy in general are in an extremely difficult situation. According to optimistic estimates, our revenues are going to halve in 2009, to $8 billion. At the same time, other Russian companies are experiencing an even more drastic fall.
We now have to spend less on investment programmes, while at the same time cutting down the expenses of the head office. But the company has done its best to keep jobs and maintain production volume at the current level.
Obviously, the environment we are working in is a little worse than that of our competitors in the world markets.

Vladimir Putin: Why is that?

Vladimir Strzhalkovsky: It is explained by the fact that export duties have been abolished for all nickel and copper producers (these metals account for the biggest part of our output). But the export duty on these metals remains in this country: 10% on copper and 5% on nickel. Of course, this puts us at a disadvantage compared with our rivals. Given such a drastic fall in prices, we pin our hopes on you and would like to suggest, or rather ask you to consider, the possibility of abolishing these duties.

Vladimir Putin: Your rivals operate in different conditions; they have a different economic model in their companies. We need to consider the figures first. I suppose the Economic Development Ministry has already made all the calculations.

(Addressing Elvira Nabiullina) What is your opinion on this issue?

Elvira Nabiullina: We have been working on this issue with ministries and agencies, and we support the proposal to abolish export duties on nickel and copper cathodes. Prices in the world markets have plummeted. Compared with peak indices, they have plunged threefold, and export share in our companies' production exceeds 90%. So, to a great extent, these companies' future depends on penetrating foreign markets.

Given the current production cost and the fall in world nickel prices, production becomes unprofitable if we keep export duties. Abolishing them will give the company additional resources.

As far as copper is concerned, the situation is similar. World copper prices have dropped by almost two and a half times. The share of copper export is also considerable with Russian companies. There are a few large enterprises producing copper for export. Apart from Norilsk Nickel, there are two more large copper producers. Such support would be very important for them. It is necessary to leave the funds we would receive as export duties at those enterprises' disposal, so that they could be competitive in the world markets. They have strong rivals there, and when global demand falls, it is vital for our companies to retain their positions. That is why we are in favour of this measure and have prepared a corresponding proposal.

Vladimir Putin: How many workers do you have?

Vladimir Strzhalkovsky: Eighty thousand people. Many cities directly depend on the company's performance. I mean primarily Norilsk, Zapolyarny, Monchegorsk, and the village of Nikel. They don't have any other infrastructure but industrial enterprises, and their residents completely depend on them.

Vladimir Putin: I understand. How much less will the budget receive, how much will it lose? How much money will the enterprises have if we make this decision?

Elvira Nabiullina: This will depend on what global prices on nickel and copper we proceed from. Prices will be going up or down, and there are calculations for different price scenarios. On average, if we cancel export duties on nickel and copper, our companies will get about $300 million. That would be the scale of real financial support.

Vladimir Putin: In other words, the budget will be short of $300 million, but these funds will remain at the companies' disposal.

Elvira Nabiullina: Yes.

Vladimir Putin: All right. Considering the strategic character of these companies, and the situation in the world markets, let's cancel tariff duties on nickel, and considerably reduce or cancel them on certain types of copper and copper alloys. This should apply not only to your company, Nornickel, but also to all other businesses in this sphere. As for nickel, I'd like to hope that its production will resume. We have several major copper companies, and this measure should help them to improve their economic position. I hope this will be reflected in the social sphere, primarily in keeping jobs.