RUSSIA – Overview of corporate leaders in Tatarstan
INTERNATIONAL
COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
2007. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.
Author: Roman Vvedensky, BISNIS representative in Nizhny Novgorod, Russia
August 30, 2007
Republic of Tatarstan is a leader among other regions, which boosts the Russian economy of nowadays. For the last few years, Tatarstan reported a steady growth in Gross Domestic Product (GDP) and in a disposable income of its 3.7 million populations, as well as improvements in quality and quantity of services, provided locally. Sustainable growth of most industries has ensured good collection of taxes, and triggered large-scale investment projects both in the private and public sectors of the region.
The current report provides with a brief overview of corporate leaders of Tatarstan, which are also major tax-payers of the republic. A U.S. company, interested to develop significant trade and investment projects in this area, should be aware of these local companies as potential customers/partners. Still, a U.S. company should never forget that the major companies of the region have accumulated a certain experience of trade and investment deals with foreign competing businesses, including European and Asian corporations, which have been working in Tatarstan for the last seven years or even more.
Petrochemical sector
It is no wonder that three largest companies of Tatarstan concentrate in the petrochemical sector. Oil deposits, discovered in the region in mid-1940s, have determined the industrial profile of the region for many decades afterwards. Now, Tatneft (which stands for ‘Tatar Oil’) is the major oil company of the republic, which produces crude oil. In 2006, the company’s output equaled 25.4 million tones of crude oil, with a slight increase in a production volume, compared to few previous years. Totally, oil companies produced over 30.5 million tons of crude oil in Tatarstan last year. Tatneft is an ultimate leader in crude oil production, and it operates over 8,700 oil wells in the region. The company’s sales exceeded US$6.7 billion, and it reported US$ 1.96 billion earnings before tax in 2006.
One of the challenges, faced by Tatnfet for the last decade, is high sulfur content of crude oil, produced in Tatarstan. Sour crude oil makes over a half of the oil output in the region. Exhaustion of oil deposits, high water cutting of oil wells, restricted areas for geologic exploration, and inefficient technologies of oil production before 1980s in the region continue the list of challenges in oil production for Tatneft. The management of the company has developed a number of new projects to minimize the existing problems and to maintain business efficiency of Tatneft.
They included expansion of geographical boundaries of oil production by Tatneft i.e. the company has been carrying exploration and oil production in the Orenburg region of Russia (down to the Southern Urals), and in a number of Arab countries, which had a weak representation of multinational oil corporations: Libya, Syria, Iran, and Saudi Arabia. Tatneft has also developed business relations with oil companies in Oman, Vietnam, and some other countries. Last year, Tatneft’s subsidiary submitted a bid to the tender, organized by the Turkish government, to purchase large petrochemical assets in Turkey (oil refineries, and a network of gas stations). Due to certain reasons, the tender was postponed, and Tatneft withdrew its bid.
Designed originally as a vertically integrated company, Tatneft recently sold out some of its processing petrochemical assets, including the stake in the Nizhnekamsk Oil Refinery. Now, the company processes its crude oil under a tolling operation agreement with oil refineries in Tatarstan, Bashkortostan, Moscow region, and Ukraine. At the same time, Tatneft has started investment in US$ 3 billion project in Tatarstan, which provides for construction of a new oil refinery (with a production capacity of 7 million tons of crude oil annually), an oil refinery for deeper conversion of crude oil (with a production capacity of 3.5 million tons of crude oil annually), and an aromatic hydrocarbons processing plant. The plants should be launched within the next three years.
Tatneft also pays close attention to development of natural bitumen in Tatarstan, with their further processing at local petrochemical companies. The research and business efforts of the company are supported by the local government, which adopted a special program on bitumen development and application. It should be mentioned that Tatneft has been always working closely with Tatarstan’s government, which understands business and social importance of the company for the local economy. Tatneft Board of Directors is chaired by Rustam Minnikhanov, Prime-Minister of Tatarstan. Tatarstan’s officials always support development of international relations of Tatneft. The natural bitumen program, adopted by Tatneft this year, is developed for the next 14-year period, and it provides for close cooperation with multinational companies, experienced in production of high-viscosity oil and natural bitumen. This May, Tatneft ran a seminar with Canadian experts, including reps of KUDU Industries Inc. (http://www.kudupump.com) on production and processing of high-viscosity oil. Later this year, Tatneft plans to announce results of the tender on production of natural bitumen in Tatarstan, and to conclude a contract with the investor. The company plans to set a joint venture to carry out the natural bitumen project with a strategic investor. The current resources of natural bitumen in the region are estimated at 50 billion barrels. They are concentrated in 450 deposits, with 150 deposits developed by Tatneft. The average formation thickness is 7-8 meters; the occurrence depth is 80-100 meters.
NizhneKamskNefteKhim (NKNK) and KazanOrgSintez (KOS) are the two largest petrochemical companies of Tatarstan. In January-March 2007 both companies boosted their sales, which exceeded US$ 522 million and US$ 212 million for NKNK and KOS respectively. Earning before tax exceeded US$ 64 million with NKNK and US$ 61.9 million with KOS for the first three months of this year. Both companies ensured a good supply of financing for their multiple investment programs, which are funded from the companies’ profit, and from external sources, including direct loans with major Russian and foreign banks, and allocation of corporate Eurobonds at international stock markets. In 2010, NKNK plans to achieve the annual sales level of US$ 2.3 billion, and KOS – US$ 1.2 billion.
Currently, NKNK is one of the largest petrochemical complexes in Eastern Europe. Its output range includes 120 chemical and petrochemical products, where synthetic rubbers and styrene (polystyrene) are the most demanding items. The range of products also includes monomers, various plastics (i.e. polypropylene and polystyrene), ethylene and propylene oxides, alpha-olefins, and many others. The company exports over 55% of its products to Europe, Americas, and Asia. NizhnekamskShina (‘Nizhnekamsk Tire’) is a local heavy user of synthetic rubbers from NKNK, which are applied for production of car and truck tires under local and foreign brands.
By 2010, NKNK plans to invest over US$ 600 million in a dozen of investment projects, including a new polystyrene plant (to increase output to 100,000 tons per year), a polypropylene plant (to increase output to 180,000 tons per year), and a polyethylene plant (to increase its output to 230,000 tons per year). The ethylene plant will produce 600,000 tons of ethylene annually after reconstruction. NKNK intends to simultaneously update its basic production facilities, and to develop its advanced processing plants.
KazanOrgSintez (KOS) is the largest producers of polyethylene in Russia with a 38% share of its total output in this country. Its product range includes 170 items i.e. polyethylene pipes for gas pipe-lines, phenol, acetone, liquid coolants, chemical agents, applied for oil production and natural gas dehydration, and many other products. The company comprises six major plants: ethylene plant (producing ethylene, phenol, acetone, and propylene), organic products plant (glycols, ethanolamine, liquid coolants, chemical agents for initial oil refining, etc.), high pressure polyethylene plant (various types of high pressure polyethylene), low pressure polyethylene plant (polyethylene beads and powder), plastic processing plant (polyethylene pipes for gas and water supply; polypropylene and plastic bags), and nitrogen and oxygen plant (nitrogen, oxygen, argon, and compressed air for industrial application).
Similarly to NKNK, KOS plans to invest over US$ 750 million in bank loans, and US$ 200 million in corporate bonds to modernize its production facilities by 2010. In 2004, the company launched an 8-year investment program, implemented in two stages: 2004-2008, and 2009-2010. The first stage is targeted to modernize ethylene production (to increase output from 430,000 to 640,000 tons annually), low pressure polyethylene production (from 197,000 to 510,000 tons per year), and to build up a diphenol-A plant (with a design capacity of 70,000 tons annually), and a polycarbonate plant (with a design capacity of 65,000 tons annually). The second stage provides for construction of a new ethylene plant (600,000 tons per year), a new propylene plant (200,000 tons per year), and a linear polyethylene plant (350,000 tons per year).
The list of foreign companies, which supply equipment and technology for KOS investment projects, includes Technip, Linde, Elliott, Nordon Cryogenie, Batenfeld, Liebherr, Grundfos, WILO, and Nortel Networks. Both companies – NKNK and KOS - are certified in quality management and ecological management systems according to ISO standards.
Automotive sector
KAMAZ is another corporate leader of Tatarstan, which dominates the automotive sector of the local economy. In 2007, the corporation plans to produce 46,000 vehicles, and to reach the US$ 2.67 billion annual sales level. The range of products includes over 30 models of heavy freight trucks; buses; tractors; trailers; motors, and other automotive components. To increase the competitive edge of the company, KAMAZ develops trade contacts with foreign suppliers of automotive components i.e. ZF (Zahnrad Fabrik), Bosch, Cummins, Deutz, Schwitzer, KnorrBremse, Wabco, and some others. In 2005-2006, KAMAZ set two joint ventures: ZF-Kama, and Cummins-Kama, which are engaged in production of ZF transmissions and Cummins motors for KAMAZ models. The corporation operates truck assembly projects in 6 foreign countries: Azerbaijan, Kazakhstan, Ukraine, Poland, Ethiopia, and Vietnam. Earlier this year, KAMAZ management has adopted an ambitious development program, which provides for further modernization of its production facilities and closer integration with other automotive companies and financial institutions.
There are also a number of other car assembly projects in Tatarstan, launched by multinational and Russian companies. The list of car and sport utility vehicle (SUV) brands, assembled in the region, includes Fiat, Hyundai, and SsangYoung. At the moment, Tatarstan’s government runs negotiations with Great Wall company on assembly of Chinese cars in the premises of the free economic zone Alabuga, located in eastern Tatarstan.
Service sector
The service sector of Tatarstan is less consolidated than the petrochemical and the automotive industries of the region. Still, there is a short list of companies, which run high in their segments of the local service sector. Finance and telecommunications have their recognized corporate leaders, although there are dozens of local companies, which perform well and which should be considered as a perspective customer/partner by a U.S. company in the local market.
Headquartered in Kazan, Ak Bars ranks among the first 20 Russian banks according to its capital and net assets. With a branch network, developed in the European Russia, Ak Bars is the largest bank in Tatarstan, where it renders financial services to over 29,000 companies, and to almost 1.5 million of individuals. Traditionally, the bank services foreign trade transaction of major local exporters and it offers a range of traditional bank products to corporate and individual customers. For the last three years, the bank has been developing rapidly its retail banking services and mortgage loan programs, which reflects the general tendency of the Russian banking market.
AK Bars bank has affiliated structures, which works in the national stock market, and in the corporate business sector of Tatarstan: Ak Bars Finance, and Ak Bars Holding Company. Set in 1998, Ak Bars Holding Company controls assets of local chemical, ship-building, electrical engineering, agribusiness, air transport companies, and recreational centers, and it is engaged in a number of large investment projects in Tatarstan.
Kazan GTS (Kazan Telephone Station) is the leading telecom company of Tatarstan. It provides services of wired and wireless telephonia, and internet connection thru its network across Kazan, which resides over 1.1 million people. Kazan GTS renders services to over 230,000 customers.
A U.S. company that plans to enter the market of Tatarstan should be aware of a strong stake of the local government in all major companies of the region. There are two holding companies, set by Tatarstan’s government, which holds a blocking stake in local corporate leaders: TatneftekhimInvest (assets in petrochemical companies), and SvyazInvestNefteKhim (assets in petrochemical, telecommunications, and other sectors). TAIF group of companies is another important cluster of industrial, construction and service assets, which develops a number of large investment projects in the republic.
Useful links with contact information:
http://www.kazanorgsintez.ru/index.php?announcement[page]=1&lang_id=2
http://www.nknh.ru/about_company_en.asp
http://www.abh.ru/ (Russian language only)
http://www.kgts.ru/new_site/ (Russian language only)
http://www.sin-x.ru/ (Russian language only)
For more information on Upper Volga region, Russia, visit
BISNIS online at http://www.bisnis.doc.gov/bisnis/country/volga.cfm
BISNIS (www.bisnis.doc.gov)
is part of the U.S. Commercial Service (www.export.gov).