Farid Minigulov, Kazanorgsintez: ‘We might increase our production load by 15-20% more’

Productive effectiveness

Mr. Minigulov, basing on the results for 2015, the Russian polyethylene market not only preserved its production but also augmented it. Kazanorgsintez also increased its main indicators. And its net profit became 3,2 times higher and reached 19,296bn rubles. It might be said that the 2015 was a good year for the company.

It was a good year: indeed, we earned a record profit and revenue. We successfully completed several large projects – launched a new pyrolysis furnace, high-density polyethylene compounding line in High-Density Polyethylene Production and Refining Factory. The shareholders will receive good dividends, according to the results of the work in 2015. Stable work was done thanks to the support of our shareholders – TAIF Group of Companies. We carried out a programme of reliability improvement of energy supply by TAIF's order. For instance, interruptions to productions, which happened because of a power outage, significantly reduced.

Are you speaking about high-speed automatic switches used at substations?

Yes, I am. We felt the results of the earlier modernization in full measure in 2015. Now the actual time of a power supply changeover does not exceed 70 ms in case of failure in the external power network. Measures for energy efficiency improvement in the last three years resulted in an economic effect for the company equal to 500m rubles. Kazanorgsintez sets a task to raise this indicator to 1bn rubles in the short run.

A huge deal of work on energy efficiency augmentation has been done. What else do you plan to do?

The volume of works is still big enough. A new programme of measures on reliability improvement of electricity and heating supply of production lines and equipment of Kazaorgzintex PJSC for 2016-2020 has already been adopted. The programme includes 127 measures and is estimated at over 3bn rubles.

Kazanorgsintez earned a record profit and revenue in 2015

What is the role of the price growth for products of Kazanorgsintez in achieving such good financial and economic indicators?

It is one of the key factors. But it is not the key one. The thing is that the cost of the raw material that we receive grows proportionally to the cost of our products. It is a parallel process. Such a formula of relationships is used with our raw material suppliers – Gazprom and Tatneft.

Polymer refiners had been raising a question of extremely high prices for products of petrochemical enterprises of Tatarstan – Kazanorgsintez and Nizhnekamskneftekhim – during last year. According to them, it is just unprofitable for them to refine such an expensive raw material.

The price for the raw material is raised for us too. But we try to reduce the costs, consumption index and energy consumption.

The results for 2014 demonstrate that Kazanorgsintez significantly reduced the export because of the increased domestic demand. Did the share of the export increase again in 2015?

Yes, now it has increased about to 20% of the total production volume. It is a standard volume.

Has it grown by means of polycarbonate?

No, we sell polycarbonate mainly in Russia. The export of organic products and polyethylene increased.

'The most important problem for us is to have raw material'

Speaking about raw material. When the President of Tatarstan Rustam Minnikhanov came to launch new factories in December 2015, he told that Kazanorgsintez would deal with the diversification of raw material provision. Won't a 10-year long-term contract with Gazprom satisfy completely the needs of the factory for ethane?

Kazanorgsintez needs to increase ethylene and polyethylene production as well as the production of other derivatives of ethylene by about 50% to reach a more stable position and be more efficient. It is not a problem to build a new factory. Neither Gazprom nor Tatneft has additional volumes of raw material – ethane. Diversification of raw material presupposes a search of other sources of ethylene production without using ethane but propane or naphtha, for instance. Each raw material has its own specifics, price and economy. Nevertheless, if we have a task to augment the production, we should look for raw material sources.

Have you chosen the technology and the licencer?

There are directions that we are following. They are quite interesting and attractive. The issue is under discussion. But I think that we will decide soon where and how we should move. It will be another development stage of Kazanorgsintez.

Farid Minigulov: 'Kazanorgsintez needs to increase ethylene production to be more efficient'

Are you talking about the creation of a new ethylene factory? What are the effective technologies for ethylene production now?

Pyrolysis, as usual. There are different variants of classic pyrolysis, modified pyrolysis. These technologies are different concerning the volume of investments, productivity and prime cost.

Are these technologies Russian?

They are not.

Will the decision on the choice of the technology of ethylene production be made this year?

Yes. The most important problem is to have raw material.

Next stage

The new development strategy 2020 of Kazanorgsintez, including till 2025, also includes a creation of its own benzene factory, which is necessary for phenol and acetone production. Has the technology of benzene production been chosen?

As for benzene production, the way, which we should follow, is seen, and we are following it. Our own factory will be created in the nearest future. It will be a joint project with TAIF-NK and its raw material. A part of the factory will be situated in Nizhnekamsk, and the other part will be here. As a result, Kazanorgsintez will completely provide itself with benzene and get rid of the dependence on raw material, while TAIF-NK will have a product for further refining. It is a cooperation, a synergy.

Does the development strategy of Kazanorgsintez plan to produce radically new products?

They are engineering polymers, special-purpose polymers – acrylic glass, epoxy resins, polyamides and polyethylene terephthalate. Most part of them is not produced in Russia. It would be possible to provide the country with these polymers. In fact, it is import substitution policy. Special engineering polymers are not exotic, of course, but there are few factories manufacturing these products in the world, while these products are very necessary. Creation of these factories for Kazanorgsintez is an opportunity to use our experience, our knowledge about work on plastics. Our enterprise has a group of competent specialists in this sphere.

Farid Minigulov: 'Kazanorgsintez' is planning to create its own benzene factory'

When will these factories appear?

We are working on this issue. The goal is to reach a more detailed description of the plastic production process by the end of the summer. And we will perform this task.

So, let's make it more concrete: will it be in 2020 or 2025?

It may be in both 2020 and 2025. If we start the construction right now, we will be able to build a new ethylene factory, modernize and increase polyethylene production by 2020. It is a priority task. All new factories need raw material. And ethylene is the main source of this raw material.

Production of engineering polymers is a perspective project on import substitution. Is Kazanorgsintez manufacturing any import-substituting products now?

We are producing products, which would be delivered from abroad if we did not make them. It is import substitution, isn't it? As for some new products, they won't appear in 2016.

There is no such a great growth in the forecasted financial indicators of Kazanorgsintez for 2016, compared to 2015. Why? Is the lack of raw material a reason for it?

We are in a situation when we are limited to the raw material. We even cannot load our factories. We could increase the production load by 15-20% more.

Farid Minigulov: 'We could increase the production load by 15-20% more'

Two big projects were carried out last year within the scope of the plan of the main investment events for 2013-2016 on stabilization of the activity and maximal load of the production capacities. Do you plan to launch any new factories in 2016?

There won't be such large project this year. But I expect that now we start with benzene project and make the ethylene project clearer.

Does it mean that you are going to work on organizational issues?

Investment decisions, more likely.

'Problems arise because of the ruble rate, not sanctions'

Kazanorgsintez is modernizing its production and launching new factories using western technologies and equipment. How do you build your relationships with western companies regarding technologies and equipment against a background of sanctions? Are there any problems with the delivery of foreign equipment?

No. The products we buy are not dual-purpose, they cannot be used for the production of military vehicles. This is why there is no problem with deliveries. It can be said that sanctions don't affect our activity in essence. Problems arise because of the ruble rate, not sanctions.

But the ruble rate does not affect the credit load of Kazanorgsintez. Last year the company successfully paid off Eurobonds equal to $100m. To whom do you owe now? How much?

We have a loan of Sberbank. We need to pay it off till 2018. Now about 10bn rubles left.

Serious borrowings will be needed for the realization of the development strategy of Kazanorgsintez

Do you plan any borrowings to realize the large development strategy?

Undoubtedly. It is impossible without it. Quite serious sums will be needed.

What is the sum?

I cannot tell it now. Many things depend on what configuration of the development strategy we will adopt.

The tax manoeuvre came into effect last year in Russia. At the beginning of 2015, you said that this innovation might be a big problem for Russian oil workers, oil refiners and petrochemists. Is it possible to say now what enterprise suffered from the tax manoeuvre the most?

I expected a worse influence of the tax manoeuvre on the petrochemistry. Fortunately, it did not happen. But we can clearly say that oil workers and oil refiners felt this influence. The manoeuvre had an impact on investments of oil workers in oil refining, first of all.

So, Kazanorgsintez does not have serious problems, except the problem connected with raw material?

Yes. Raw material is our main problem. But we have other tasks too: efficiency enhancement, reduction of ecological impact, modernization of the production in order to protect the enterprise from any crises.

Many large enterprises declared layoffs or introduction of short time…

No, we don't plan anything like this. Taking into account the fact that we will create new factories, we are going create new working places too.