Kazanorgsintez: chemistry of success

Having avoided a collapse, the semi-centenary enterprise increases its revenue

Kazanorgsintez: chemistry of success

Realnoe Vremya newspaper starts a project called TAIF-25 dedicated to the anniversary of one of the largest holdings of Russia and Tatarstan. The business pioneers, the TAIF Group, the association of effective enterprises, and each of them has a complicated history. The first issue of the cycle is devoted to Kazanorgsintez that joined the TAIF Group in 2003. Within just some years the enterprise transformed: the volume of the output product increased, modernization programme was launched, and it consolidated positions in the market. All about stages of development of the chemical giant, the most dramatic periods of the contemporary history of the semi-centennial enterprise and other facts are in the first issue of the special project TAIF-25.

On arm's length terms

In 2003, Kazan was intensively gearing up for the celebration of the Millennium of Kazan: the subway and Millennium Bridge were under construction… While one of the largest factory's fringes, Kazanorgsintez, was awash with bumpy roads and rubbish underfoot. 'On the shop floor, it was steaming and howling. Especially I was impressed by the dining room: dull walls, warped doors, antediluvian fridges, which could be even older than me, aluminium kettles and pannikins,' said Leonid Alekhin, the ex-director general of Kazanorgsintez refreshing in his memory the first impressions after the integration. He continues the story describing flowing water in the shower cubicle. 'No, the tap isn't broken, it is intentionally opened in order to heat the bunkhouse with the vapour of the stream of hot water. The fog is, undoubtedly, a trouble, and the plaster is crumbling from the walls, but it's Arctic out there.' That was a description of every part of the enterprise because KOS (Kazanorgsintez) had been functioning during 40 years for that moment. In the 1990s criminal was revolving around the plant, green barter schemes dominated, and the lion's share of the production was realized on the other side. Old technologies were holding back the production prompting the reduction of the profit in the competitive market. It was followed by trifling salary, bad working conditions and lack of belief in any future.

Factory operatives got new production on 13 July 1963

In 2003, Kazanorgsintez turned a new page in its history. TAIF GC became the major shareholder of the enterprise, which owned 4,5% of shares first, by 2003 – 16,39% and increased its block of shares to planned 51%. And the shares were bought under market conditions dealing with minority shareholders.

Albert Shigabutdinov, the director general of TAIF Public Joint-Stock Company, says that the government of the republic offered to pay attention to KOS, which couldn't possibly proceed to the modernization. 'We had negotiations with all the shareholders who held at least 0,1% of the shares. This process took about a year. The government offered us to buy a large block of shares at the beginning, then declared that if they were going to sell their blocking stake, they would be up for auction only. So we needed to continue negotiating with shareholders.' The negotiations were strictly confidential, and all the contracts with the holders were signed literally at the same time and below market and privatization rate.'

'The government of the republic offered to pay attention to KOS, which couldn't possibly proceed to the modernization.'

From keeping bunkhouses to investment programmes at billions of dollars

The major shareholder made his presence felt in Kazanorgsintez creating safe and comfortable conditions for work and rest first. Modern fridges, microwave ovens and furniture were purchased. People admitted the care, supported the owners' initiative and started creating cosiness as well. Someone brought an aquarium and some fishes to relieve stress observing the water life. Then flowerpots appeared. Planted earlier near the shop floors, trees had to be cut; it's not a good place for them in a fire explosive facility. Preparation for far-reaching reforms was the next step, inasmuch as at that moment, it was obvious that the enterprise couldn't survive in a changing competitive market without modernization.

The major shareholder made his presence felt in Kazanorgsintez creating safe and comfortable conditions for work and rest first

More than $2bn were invested in the great development programme made up with the participation and control of TAIF and the government of Tatarstan. The scale of positive changes in the enterprise was enormous, so that Kazanorgsintez converted into the perfect example with the latest technologies and equipment.

Renewal of product line and unique factories

Drastic changes in the enterprise, which remains one of the largest polyethylene manufacturer in Russia and in CIS countries, originated in a contract between Kazanorgsintez and Univation Technologies (USA) on licensing the enterprise of Tatarstan to project, build, produce and sell the latest models of linear and bimodal structure with a capacity of 440,000 tonnes per year worldwide. Univation Technologies specializes in development and implementation of the innovative technologies in polyethylene production.

More than $2bn were invested in the great development programme made up with the participation and control of TAIF and the government of Tatarstan

In a year for the first time in Russia KOS got the first commercial party of the new product – linear polyethylene. The reconstruction embraced all three technological fibers of the polyethylene production stage by stage: the reactor A and C first, then partially the B one. The installation of the new water rotation system for reactors was carried out, and the new cooler was put into operation. It also was planned to launch a new line on ethylene cleaning and new circulation compressors. Transfer of the equipment and process management at upper level and refitting of automatic emergency shut-down was fulfilled.

The modernization of the enterprise on production and low-pressure polyethylene reprocessing allowed to increase the production capacity from 197,000 tonnes to 510,000 tonnes per year. Now KOS produces a traditional low-pressure polyethylene and more than 20 new models of polyethylenes of linear and bimodal structure, which hadn't been produced in Russia and CIS countries before.

At the same time, the construction of absolutely new and unique for Russia manufacturers of polycarbonate and bisphenol A was started on empty territories. Polycarbonate is a plastic, a material that tightly came in our life. One way or the other, many objects in our midst contain this material. Flood-lamp lighting, mobile phone, remote control and computer monitor cases, CDs, optics – everything is the sphere of polyethylene application. In addition, the material is widely used in aircraft engineering and shipbuilding for the reason that it is easily exposed to moulding and quite solid. Moreover, this plastic is applied to construction: roof of buildings, transparent peaks, vandal-proof shelter, and, of course, it has become irreplaceable in the Russian country houses – dachas. Greenhouses made of polycarbonate proved to be reliable and comparatively cheap. The range of products from polycarbonate is wide. It is used even in the food industry: light, unbreakable baby bottles and big carboys for drinking water. And again it proves the safety of our product for a human.

Today Kazanorgsintez manufactures about 500,000 tonnes of products per year

One thing needs clarifying: there are two ways of polycarbonate production. The first method is held using phosgene while the second process is, on the contrary, –non-phosgene. Phosgene refers to the category of the extremely dangerous chemical substances. It is made of carbon monoxide and chlorine, which require cautious preservation. Having studied technologies of the international market, Kazanorgsintez Public Joint-Stock Company chose the technology of Asahi Kasei (Japan), which doesn't use phosgene. This method is relatively new, it appeared only in the early 21th century in Taiwan.

First President of the Republic of Tatarstan Mintimer Shaimiev, who had good relationships with Takehiro Togo, the Ambassador of Japan in Russia, helped TAIF through Mitsui agency a lot to improve relations with the Japanese company Asahi Kasei, which agreed to sell the technology and the licence on polycarbonate production using non-phosgene process.

By the way, one of the main components in the production of polycarbonate is bisphenol. This is why in 2003 in Kazanorgsintez simultaneously with the polycarbonate plant a new manufacture of bisphenol A based on a technology of the Japanese company Idemitsu Kosan appeared. Towers, heat-exchangers, reservoirs were purchased in Russia, the rotating equipment was mainly of foreign origin.

With the help of 8,000 workers, KOS generates over 54bn rubles of revenue

So, literally within 5 years instead of empty camps two brand new, the polycarbonate and bisphenol A, plants opened. It, by the way, is the tenth part of the European market.

It's necessary to mention that today Bayer, Material Science and Sabic are the largest producers in the world with the output over a million tonnes per year each. The fact that the industrial sites are situated in many countries explains this situation. Nowadays the polycarbonate of Kazan supplies the needs of the Russian processors. The principal one is located in Tatarstan, which neighbours Kazanorgsintez. It is SafPlast company dedicating mainly to the production of cellular and monolithic sheets. In 2011, SafPlast made Kazanorgsintez a question as regards the possibility of sky-blue granule production. So, the investigation on additional selection and the ways of its implementation into the fusion was launched, in which workers of the central laboratory of Kazanorgsintez took part. As a result, in 6 months the plan was accomplished, and customer needs were met. The production of Kazan enterprise is furnished to the market under GREEN TOWER trademark.

It isn't enough just to build some new for Russia manufactures. The performance needs to be strengthened by necessary materials too. For instance, phenol production was totally modernized in order to provide the raw material for the new bisphenol A plant. At present, phenol production is under computer control system, the whole process is on the monitor, and there are no outmoded devices with handles. Before the reconstruction, the volume of produced phenol was 42,000 tonnes, now the output numbers 65,000 tonnes per year.

By the way, its necessity for the new plant allows to convert an inefficient phenol, which doesn't meet a ready sale, and it is of a short expiry date, into a valuable product, and, ultimately, to refuse of purchases of another raw material for the production of polycarbonates on the other side.

At present, phenol production is under computer control system, the whole process is on the monitor, and there are no outmoded devices with handles

Bound by raw material chain

Even now many years later after the modernization of KOS many specialists call the result 'aggressive development strategy of TAIF. It is important to note that nothing but that strategy allowed to achieve these great results. It was particularly noticeable during the period of the global economic crisis started in 2008.

It was a time when many rivals of KOS simply discontinued the production. Nevertheless, Kazanorgsintez didn't shorten its output providing the consumption of all the chain of raw material suppliers. KOS didn't slow down, on the contrary, provided the consumption of the straight-run gasoline in TAIF, which used the petroleum produced by 'Tatneft'.

However, Kazanorgsintez was among those enterprises that seriously suffered from the crisis. The demand and the output price sharply dropped. The enterprise finished 2008 at a loss of 2,8bn rubles. The first quarter of 2009 became unprofitable as well – 2,6bn rubles. For financing original works Kazanorgsintez borrowed many short-term credits that were supposed to be long-term later. Due to the crisis, banks refused to work according to the current long-term line of credit.

Kazanorgsintez was among those enterprises that seriously suffered from the crisis

At the same time, new payment dates were inexorably approaching. KOS was to give 11bn rubles (out of 29 billion of rubles) to the creditors till the end of 2009. As it was mentioned in the report for the third quarter of 2009, 20% of payments exceeded the time limit on the grounds that the bank refused to fulfil all the current loan agreements. In December 2009, the whole country was living in the expectation of Pre-New Year break, and people were thinking less about work and were busy with pleasant fusses, but the Kazanorgsintez was worried, perhaps, about the most dramatic period in its contemporary history.

The problems were discussed at ministerial level, and Sberbank was one of the first companies that expressed its willingness to participate in the credit restructuring, which offered an intervention in making a contract with Gazprom on ethane delivery from Orenburg.

It wasn't an easy task as a result of long-standing discussions on that problems rooted in the Soviet era, when on the basis of the oil and gas condensate field of Orenburg powerful gas storage was created. The helium refinery of Orenburg dedicated to the production of a strategic product – helium. Ethane is a valuable raw material in petrochemistry and a secondary product, which is formed during the process above mentioned. It was decided to reprocess ethane in Tatarstan, where there were a scientific basis, skilled workers formation and firm century-old traditions of the Russian chemistry school famous for Zinin, Butlerov and Arbuzov. Orenburg-Kazan ethane pipeline was built by 1982, when the process of transportation of ethane fraction by the major pipeline in supercritical conditions was mastered. If in the Soviet era everything performed its function as in a single organism: raw material immediately flowed to the place, where the chemical production had been launched. After the dissolution of the Soviet Union, the gas of Orenburg was in the system of Gazprom. The laws of the game suddenly changed. The ethane production and realization turned out to be a side business, which was an occupation of some structures close to Gazprom.

The absence of the alternative raw material for the ethanol of Orenburg made KOS the weakest link of the petrochemical chain of Tatarstan

In that situation Gazprom started to dictate terms of enslavement and forced Kazanorgsintez to deliver ethane under two separate agreements: according to the first contract, 50% of discussed volumes using the tolling scheme, and to the second one – 50% at agreed price. This way, in 2008, as KOS stated, for the chemists of Kazan a tonne of ethane cost about 10,000 rubles while the market price was 3,500 rubles. For Gazprom the profitability of the scheme made 84%, while for KOS it provided a negative profitability of 3% and the loss of 4bn rubles. This is why it isn't a surprise that Kazan was trying to cancel that tolling scheme, and Gazprom accompanied by close to the company enterprises as well as Sibur was strongly against of that not only in words, it's what we can only guess. The absence of the alternative raw material for the ethanol of Orenburg made KOS the weakest link of the petrochemical chain of Tatarstan.

The solution of the problem was offered by Vladimir Putin, the Prime Minister at that moment. In Nizhnekamsk, there was a meeting on the problems of the petrochemical industry, where he heard out all the arguments and advised to work under market conditions. Although later Sibur gave its price for ethane, which was attached to the cost of the polyethylene.

TAIF carried out all obligations in advance, the loan was paid back. Now given to TAIF government guarantees are closed

After long negotiations Gazprom, in the person of Sibur, and KOS finally signed a contract on ethane delivery, which is the main raw material for the polyethylene production. And Sberbank appropriated funds for the restructuring. 'The conditions were, undoubtedly, difficult. The line of credit of Sberbank was 35bn rubles at 16%. The sum of the government guarantees was 17,5bn: 10bn went to Kazanorgsintez and 7,5bn to TAIF, including the shareholder,' says Albert Shigabutdinov. 'TAIF was to give Kazanorgsintez 15bn altogether. In Sberbank TAIF had a line of credit on 15bn. We took 7 billion. What is more, there was a condition for us: we needed to give a controlling block of shares of KOS in hostage, mortgage the property and give the security for TAIF. The guarantee of TAIF means that all TAIF is in hostage.'

TAIF carried out all obligations in advance, the loan was paid back. Now given to TAIF government guarantees are closed. But 'Kazanorgsintez' still has a plain debt of 12,8bn rubles to Sberbank.

Today's reality

In Kazanorgsintez during two last years a fine adjustment of processes has being carried out, which was launched within the scope of implemented large-scale investment project at 77bn rubles. Nowadays the programme on stabilization and reliability improvement of the enterprise at 6,2bn rubles is executed.

The investment programme from 2013 to 2016 allows to improve the economy of production and increase its stability

This year KOS plans to launch two big factors. So, in September, it is thought to put into operation a double chamber pyrolysis furnace based on ethane of Technip company. KOS signed a contract with this company in spring of 2003. The contract presupposes design, equipment delivery and control of the furnace construction. In addition, in the plant of low-pressure polyethylene production and processing, we start an additional production of black polyethylene used for pressure-pipe making. According to the director general of Kazanorgsintez Farid Minigulov, productive capacities on black polyethylene will increase from 160,000 to 220,000 per year. And the new furnace will allow to reduce the unit consumption of ethanoic material for the ethylene production and provide the increase of its total output by 30,000 tonnes. Actually, the investment programme from 2013 till 2016 doesn't forecast big investments, compared to the previous year. It lets improve the profitability of the factory and lift the stability, though. For instance, last year a very serious programme on stabilization of energy saving was fulfilled. The factory also plans to create a new hydrogen production unit, modernize units of demineralized water for ethylene production and pyrolysis furnace using Ethylene-200 installation.

If in 2003 the enterprise produced goods gaining 8,773,800m rubles, 11 years later in monetary terms the commercial product increased sixfold to 54,101,6m rubles

Efficiency is one of the key principles of the economic strategy of the TAIF Group. In a few years, due to the major shareholder, the chemical enterprise managed to change. In this way, in 2013, the general qualified capacities of the enterprise were 1,815,3 tonnes of products of organic synthesis, while in 2003 it was 1,193,5 tonnes. The net profit in 2014 numbered 6,112m rubles, while in 2003 the index was equal to 889,2m rubles. If in 2003 the enterprise produced goods gaining 8,773,800 rubles, 11 years later in monetary terms the

Ahead of the curve

Today Kazanorgsintez generates approximately 1,5m tonnes of products per year. The range of the products embraces over 170 articles. KOS generates proceeds over 54bn rubles being one of the largest in Russia and famous abroad polyethylene and polymer producer with the help of more than 8,000 workers.

Moreover, Kazanorgsintez never fails to pursue the policy of social responsibility towards its workers and their family members. The quality, availability and technical equipment of medical care, foodservice sector and organization of kids' holiday are one of the best both in Kazan and in Tatarstan. Kazanorgsintez renders financial support to many establishments of social service such as recreation centres, food production facility, clinic, health and recreation resort and Sintez swimming pool. The efforts of the units of social services designed to create favourable work conditions and form salubrious psychological climate not only for the collective but the citizens of Kazan.

A. Maukaev's Youth Komsomol brigade — constructors of the Kazan Chemical Factory

Furthermore, Kazanorgsintez has been taking part in the social mortgage programme since 2005, which was used by 586 workers by the end of 2014. Last year in spring Kazanorgsintez signed an agreement with Presidential State Housing Foundation on allocating 1,600 flats, which are built in Salavat Kupere (Rainbow) new residential complex to the workers during the period of 2 years from 2014 till 2016 due to the efforts of the major shareholder. At the same time, the administration of Kazanorgsintez and the major shareholder in the person of TAIF decided to appropriate interest-free purpose loan for 15 years to their workers for a downpayment for home purchases. Employees can count on the amount equal to 20% of the cost of the house because of this possibility. And those who took out the loan and has been working in the factory conscientiously with no reproof during one year have the right to get fringe benefits. For example, the enterprise can 'forgive' 8-10% of the debt for workers who have five-year seniority. And if an employee conscientiously has been working in KOS or in TAIF over 10 years from the moment when he took out the loan, the mortgage would be paid off as an additional reward for his or her fruitful work.

There is one more project in which KOS participates with the major shareholder. It is the construction of a new building for the Department of Chemistry of the Kazan Federal University. It is planned to accommodate eight research institutes of the Department of Chemistry, including about twenty research laboratories. KOS went ahead with the reconstruction of the park near Khimikov (Chemists) Palace of Culture, which was founded in 1945 but abandoned during many years. Within the scope of the 'Year of Parks and Public Gardens,' the park 'Sosnovaya Roscha' (Pinery) will have changed beyond recognition by May. This place is supposed to be one of the citizens' favourite places for leisure.

Vladimir Lushnikov, the first director of Kazanorgsintez. March 1960

Consequently, the history of Kazanorgsintez PJSC, which is rich in traditions, at this moment continues developing owing to the intelligent and competent strategy of the major shareholder represented by TAIF, concerted and qualified efforts of the collective that, undoubtedly, will yield fruits in the nearest future.

By Alsina Gazizova