Hundreds of billions of rubles in petrochemistry: SIBUR concludes investment agreements with Ministry of Energy

At least 400bn rub in the development of 3 production facilities

Since SIBUR's arrival in Tobolsk, as in other regions of its presence, the company has been actively involved in the socio-economic life of the city. The discussion of plans for the further development of the ancient capital of Siberia has been held for many years with the invitation of representatives of the country's largest petrochemical company. During a discussion, SIBUR's management announced the signing of the agreement with the Russian Ministry of Energy on plans to invest 400 billion rubles in the period up to 2027 in the modernisation of existing and construction of new capacities at ZapSibNeftekhim, Kazanorgsintez and Nizhnekamskneftekhim.

SIBUR plans to invest at least 110 billion rubles in the construction of new production facilities at the site of ZapSibNeftekhim. It is also planned to invest almost three times as much in the period up to 2027 in the development of Kazanorgsintez and Nizhnekamskneftekhim.

The amount pledged in the agreement is the minimum obligations of the company. SIBUR itself reported that the expanded list of possible projects for implementation within the framework of the signed documents includes projects totalling 560 billion rubles.

From words to deeds

Before the creation of the merged company, skeptics expressed doubts that SIBUR would remain interested in continuing the development of chemical production in Tatarstan. Although the company's management has repeatedly stressed the opposite. In September 2021, during the signing of the agreement on long-term cooperation between the Republic of Tatarstan and SIBUR Holding PJSC, Tatarstan President Rustam Minnikhanov focused the attention of the participants and guests of the ceremony on the fact: “The companies do not just intend to implement all the commitments made to develop the petrochemical complex, they also plan to do much more.”

After less than three months, the promises began to be implemented in practice. The total cost of the projects that SIBUR, according to the agreements concluded with the Russian Ministry of Energy, plans to implement in the coming years at Kazanorgsintez and Nizhnekamskneftekhim, will amount to at least 285 billion rubles. And the company reserves the opportunity to increase the volume of investments.

First of all, investments are planned to be directed to the development of production of deep-processing materials that are in demand by the Russian market of processors. At the same time, the holding puts environmental issues and the choice of technology for future projects, including based on the priorities of minimal environmental impact, as one of the key priorities, no less significant than the economic effect.

It is also planned to build and put into operation facilities for the production of materials that do not yet have domestic analogues and are currently imported to Russia. We are talking, among other things, about the development of low- and medium-tonnage petrochemistry, the need for which was particularly emphasised by Russia’s President Vladimir Putin in December 2020 in Tobolsk, during the meeting on the strategic development of the Russian petrochemical industry.

“Domestic demand here, of course, significantly exceeds what we currently produce, and the deficit is closed due to imports. In some positions, the dependence on foreign suppliers reaches 100 percent. Of course, this situation needs to be changed,” Vladimir Putin stressed at the time.

Multiplicative effect

Increasing the volume and the range of polymer production will reduce the dependence of the domestic market on imports. This opens up wide opportunities for Russian processors to develop their own production facilities with a wide range of competitive products in demand both on the domestic market and export-oriented.

“The fact that ZapSibNeftekhim, Kazanorgsintez and Nizhnekamskneftekhim combined are able to work on the entire palette of hydrocarbon raw materials used — from naphtha to ethane and NGLs, allows the holding to build business more flexibly,” said Vladislav Kochetkov, the president and chairman of the management board of Finam investment holding, in a conversation with the journalist of Realnoe Vremya.

It is obvious that by effectively diversifying the common reserve base, SIBUR as a whole has the possibilities to partially suppress market fluctuations and, in the event of failures in the supply of one type of raw material, to provide consumers with the shipment of polymers made from another type of raw material. However, according to Kochetkov, this is primarily important in the conditions of a shortage of a particular raw material.

“In terms of the price, it is rather a tool of limited action, since all the main types of hydrocarbon crude correlate with each other and the increase in the cost of one entails a change in pricing policy with respect to the rest,” the expert is sure.

The expected growth in production volumes, the diversification of the brand range and the range of products as a whole is only an obvious and easily noticeable part of the economic effect of investments in the development of the petrochemical complex. This process is important and beneficial not only for the company itself, but also for the state as a whole, the regions of production presence and the population of these regions.

The state, by offering the reverse excise duty on raw materials (ethane and LPG) as an instrument, thereby allows companies to equalise distortions in terms of taxation on different types of petrochemical and gas crude, thereby making it more profitable to process it domestically than to send it abroad. “Thus, the profitability of projects will reach 11-14%, which will become an attractive condition for investments,” Alexander Novak, the deputy prime minister of the Russian Federation, stressed in his author's column in Energeticheskaya Politika magazine in October 2021.

The country, compensating companies for part of the investment costs, invests in the growth of the taxable base, as well as in the implementation of the federal plan for the development of the Russian petrochemical industry for the period up to 2030. We are talking about the tasks announced at the meeting in Tobolsk in December 2020 to increase the production of petrochemical crude by one and a half times by 2030 — to more than 66 million tonnes a year, and to increase the share of its processing into polymer products from the current 29,8% to 46,5%.

“Indeed, we are talking about large-scale plans comparable to the amounts of investments in new production facilities — world leaders. It is not disclosed whether SIBUR will receive state support, but given that the investments exceed the group's revenue for two years, we can expect preferential financing of the announced investment projects. They are significant for the Russian economy not only as a factor in creating new jobs, import substitution, and GDP growth, but also as an additional factor in maintaining demand for Russian oil, which may decrease as the world switches to electric vehicles and green economy,” Vladislav Kochetkov noted in an interview with Realnoe Vremya.

He also stressed that the merged company is already the undisputed leader in the Russian petrochemical market, and the implementation of the announced plans will only strengthen its position. But if we talk about the global scale…

“So far, even taking into account the announced multibillion-dollar investments, we can only talk about strengthening positions in individual niches. The gap between Russia and the countries that are the largest producers and exporters of a wide range of polymer products is still very large at the moment,” the president-chairman of the management board of Finam investment holding expressed his opinion.

If we talk about the additional economic and social effects of the upcoming investments, then even at the design and construction stage, the implementation of projects will become a driver of development for a number of related industries: specialised institutes, engineering agencies, manufacturers and suppliers of materials and equipment, builders... The prospect of expanding production facilities and commissioning new plants and lines will create an increased demand for qualified workers, which will be an incentive for specialised universities and colleges. Moreover, we are talking about the development of not only the petrochemical industries themselves, but also equipment and machinery maintenance enterprises, small and medium-sized businesses that produce goods from polymers. The growth in the number of jobs in large-scale industries invariably leads to an increase in demand for social services, and these are household services, trade, recreation, entertainment, etc.

The development of petrochemical industries inevitably leads to the active development of related industries. And all this in general is a multiplicative effect, leading to an increase in the total taxable base, an increase in budget revenues at all levels, which, in turn, gives even more opportunities both for the development of the regions where SIBUR companies operate and Russia as a whole.