Vladimir Busygin: ‘Many experts attribute the record profit of NKNK to weak ruble. But it is not true’

'Plastics and rubbers have always been and are the priority for NKNK'

Vladimir Mikhailovich, the petrochemical industry in the Russian Federation, despite the general trend of decline in 2015, has shown a significant increase, and Nizhnekamskneftekhim has reached the record financial and economic indicators. What factors have led to these results?

Yes, indeed, Nizhnekamskneftekhim has successfully completed all tasks for 2015. The company's turnover has exceeded 150 billion rubles, and net profit has amounted to 26.5 billion rubles, the output volumes have increased by 3% in comparison with the previous year.

Only once we have reached similar results in the history of the company— in 2012, at that time there were very favorable conditions: a global shortage of rubber, a deficit in the domestic market of plastics. By that time, we almost finished extensive work on the reconstruction and reconfiguration of the enterprise and completely reformatted Nizhnekamskneftekhim from the producer of semi-finished products and semi-products, as it was in 1999, in one of the world's key producers of synthetic rubbers, and at the same time became a major participant in the Russian market of polymers. Due to the refinery plant TAIF-NK, the issue of raw material supply for the plant, which steadily delivers all required amount of naphtha, as well as propane-propylene and butane-butylene fractions, was fully resolved. Long-term contracts were signed with Gazprom for the supply of liquefied petroleum gas. As a result, the company issued the maximum volumes of the most profitable for that time products.

In 2012, our sales exceeded $4 billion, and net profit amounted to $545 million. Last year, the company produced about 1.4 million tonnes of polymer products, the revenue amounted to about $2.5 billion, net profit — $434 million.

Only once we have reached similar results in the history of the company— in 2012, at the same time there were very favorable conditions

Many experts attribute our record profits to weak ruble and the fact that the company exports almost half of production, and therefore the main profit is due to currency income. But it is not true. Yes, the share of exports in the revenue of the enterprise is almost half. But the direct correlation between the prices for petrochemical products with the price of oil, the quotations of which was declining since the summer of 2014, as well as the collapse of quotations on natural rubber, on the contrary, has decreased the revenue in dollar terms.

At the same time, we should take into account that the cost of some resources for our production either is based on the import prices or depends on the export alternative of the supplier. Here, the weak ruble is a negative factor.

Besides, I want to say that despite the challenging macroeconomic, political and market situation, 2015 for Nizhnekamskneftekhim was successful also due to other factors: the increasing volume of production and sales, the balanced product portfolio of the company reached by global agreements on the deliveries, as well as the enlargement of the sales geography, the opening of new channels of raw materials supply and a number of measures aimed at the reducing of costs.

What are the positions of Nizhnekamskneftekhim in the Russian market of plastic products? What place does the company take today what is it making to strengthen the busy niche?

Plastics and rubbers have always been and are the priority for the company. Until 2003, the company produced only monomeric products, but today we produce more than 700 thousand tonnes of plastics and almost 650 thousand tonnes of rubber. As for rubbers, Nizhnekamskneftekhim — still is the largest manufacturer in Russia. We produce the widest assortment — seven types — of synthetic rubbers: isoprene, butyl, brominated butyl and chlorobutyl rubbers, polybutadiene rubbers on a neodymium and lithium catalysts, and butadiene-styrene rubber.

NKNK produces the widest assortment — seven types — of synthetic rubbers

Over these years, we have become the second largest producer of plastics in the country. Currently, the plastics business is 35% of sales. In this, the main direction of the plastics sale — Russian market. The contracts have been signed with the largest processors and distributors, and brand assortment covers all types of processing.

At the same time, today Nizhnekamskneftekhim is the only one in the country which produces medium density polyethylene for the rotomolding of bulk containers and linear low density polyethylene for the production of food films, industrial and transport packages.

Besides, Nizhnekamskneftekhim is the largest producer of polystyrene and copolymers of propylene, new brands of which have successfully substituted foreign goods in recent years. Due to the growth in volumes and the close cooperation with the processors, the imports of polystyrene in the country over the past three years have decreased by 55%, of block copolymers — twofold, and of stat-copolymers — by one-third.

Let me stress that the company has enough capacity to meet the needs of all Russian processors in a linear low density polyethylene and polystyrene. All these years, the specialists of Nizhnekamskneftekhim PJSC have been intensively engaged in the import substitution, and much had been done even before this concept was exaggerated by the media.

What are the plans of the company in this direction in the future?

In the medium-term plans — to continue to actively develop the direction of plastics, diversifying its production, to enter new market segments, including through import substitution. So, this year it is planned to increase the production of linear low density polyethylene. Now this market is heavily dependent on imports: 80% falls on foreign company SABIC, ExxonMobil, Dow, Lotte Chemical, etc.

The launch in the spring of this year of the unit of linear alpha-olefins will contribute to the growth of volumes. It will provide the production of polyethylene with own comonomers of ethylene — butene and hexene. Besides, in March at the plastics plant, the production of polyethylene for rotational molding was resumed. This segment in Russia is also represented by only imported goods.

Another area which we are developing in the framework of import substitution – it is the production of two brands of polyethylene for molding of caps and closures. According to customer feedback, our material proved to be adequate, at the level of analogues of import brands, which are still used by a processor. The decision to begin commercial production was made and in January there was produced a large batch of these products.

Nizhnekamskneftekhim is a major producer of polystyrene and copolymers of propylene

Along with this work, last year it was mastered the industrial production of a special brand of polyethylene for corrosion protection of oil and gas pipelines. It is used as an external coating for steel pipes. We have already received positive conclusions from Transneft, that will allow shipping the polyethylene of this brand in two plants in Moscow region and Chelyabinsk. Simultaneously, the certification is being carried out for Gazprom that will make possible the use of Nizhnekamsk polyethylene in large scale projects such as laying of pipelines.

As for polypropylene, today, as it was mentioned above, the company is focused on the production of propylene copolymers. Among the new mastered brands — high viscosity brand of copolymers for the production of products obtained by high-speed thin-walled molding method. Other two new brands — shock-resistant and frost-resistant blockcopolymers — are necessary for the automotive industry and in the production of rigid packaging and industrial use.

'We are not going to be satisfied with what has already been achieved'

What is the situation on the global market of rubbers? What place does the company take in the world industry by volume of this type of products?

Due to the fact that the production volume of synthetic rubber in Russia 3.5 times exceeds the volume of consumption, then the main market is foreign, where Nizhnekamskneftekhim ships over 90% rubber. Our company takes the seventh position by the total production volume of synthetic rubbers in the world. Moreover, for example, Nizhnekamskneftekhim is the largest producer of SKI-3 in the world, our rubber takes 43% in the global market. At the same time, NKNK – the third largest producer of butyl rubber (16%) and one of the largest suppliers of butadiene rubbers (the share exceeds 5%). Such strong position on the market of rubber is due to the close cooperation with the top five global tire companies, with each of which we have signed long-term agreements.

Of course, tire manufacturers constantly develop; it becomes a driver for product development and for the rubber plants of Nizhnekamskneftekhim. Now, taking into account the wishes of consumers, the work is being carried out for reducing the content of volatile compounds in halobutil rubber, which will allow producing tyres with a thinner sealing layer. Besides, we are working on narrowing of polydispersity in polybutadiene rubber, which should improve a dynamic performance of rubbers based on it. Tires based on rubbers with such improvements will have lower losses during rolling. Another direction of development — the organization of modern production of butadiene-styrene rubber, SBR. This rubber due to its unique properties gradually substitutes traditional emulsion styrene-butadiene rubber. The demand is driven by developing in the world production of so-called 'green' energy efficient tyres: they have low rolling resistance and higher wet grip.

The demand for butadiene-styrene rubber is driven by developing in the world production of so-called 'green' energy efficient tyres

Meanwhile, let me note that competition in the segment of rubbers is growing. The industry leaders are protecting rigidly their know-how, as there are no available licenses or developments on the market. Therefore, Nizhnekamskneftekhim is conducting independent developments. It is a difficult path, but I am sure that our experts will successfully cope with this task.

Every year for the past 15 years, the company launches new productions. What projects were implemented last year and what is expected in the near future? What prospects are opened for the enterprise?

It is true, over the past 15 years, the company has built more than a dozen new production complexes. They are modern productions of plastics, rubbers and intermediates for them. Accordingly, a range and volume of production have increased: last year the total volume of plastics amounted to 718 thousand tonnes, and rubber — 647 thousand tonnes. At the same time, we have greatly improved the indices for monomeric types: the amounts of ethylene have increased from 450 thousand tonnes up to 600 thousand tonnes per year.

As for the projects implemented last year, there are several. It is the fourth unit of isolation and drying of rubber with capacity at 40 thousand tonnes; a unit for decomposition of high-boiling by-products at the production of isoprene, which allows annually getting an additional 15 thousand tonnes of raw materials for the production of SKI-3; the beginning of the production of a carrier for the microsphere catalyst, that is necessary for the process of dehydrogenation of isobutane to isobutylene. Besides, we continue the work on the increasing of the production of isoprene from isobutene, plus the construction of a new production of formaldehyde. We are mastering the production of new brands of plastics that are in demand in the food, medical, automotive, construction and many other industries in Russia and abroad.

Over the past 15 years, the company has built more than a dozen new production complexes

Also, now at the oligomers plant, there has been completed the project for the production of linear alpha-olefins with capacity at 37.5 thousand tonnes per year. The main products of this unit — fractions of butene-1 and hexene-1 – will be used instead of the currently imported raw materials at our plastics plant to release comonomeric brands of linear polyethylene. Besides, the products of this unit are necessary not only for NKNK but also for Nefis cosmetics and the oil plant Tatneft-Nizhnekamskneftekhim-Oil.

I would like to note that today the possibilities have been almost completely exhausted for increasing capacity at the existing industrial site.

But we are not going to be satisfied with what has already been achieved and in the next 10 years we want to realize no less large-scale development programme. It is based, as is already known, on the construction of a world-scale new olefin complex with capacity of 1.2 million tonnes per year for ethylene and integrated production of plastics — polyethylene, polypropylene, polystyrene and polyethers.

'Nizhnekamskneftekhim has always considered Tatneft as the most important partner'

Of course, new industrial objects, as well as for existing ones, need raw materials in large amounts. One of the suppliers with whom the company has a long-standing relations is Tatneft. In what types and amounts of raw materials from oil companies is NKNK interested in and what joint projects you are implementing?

Indeed, for many years, our company and Tatneft have strong partnership relations based on mutually beneficial cooperation. Nizhnekamskneftekhim has always considered Tatneft as the most important partner. Close geographical location, the presence of own raw-material base and own industrial petrochemical complexes help our mutually beneficial cooperation and implementation of joint projects.

Historically, our companies are very closely interrelated. In the middle of the last century, a very precise concept was adopted of the industrial development in Tatarstan with the use of its powerful raw-material base which the Republic has used until now. All regional fuel and raw materials companies, petrogaschemical and mechanical engineering enterprises are combined in united production and economic chain.

In our Republic there is the concept adopted in the Soviet era of the processing of raw materials and the production of final products at one production site. Naphtha and liquefied petroleum gas are produced from the produced in Tatarstan oil and associated gas. The next link is ethylene, other monomers and intermediates. Then — plastics and synthetic rubbers, from which then tyres and other products are manufactured. And they are used in various fields: from the automotive industry to the production of consumer goods.

If to talk about the raw material interaction between NKNK and Tatneft, our productions of Tatneftegazpererabotka annually exports 40 thousand tonnes of isobutene fractions. Besides, after the launch of the oil refining complex TANEKO we began to receive annually 150 thousand tonnes of NGL (natural gas liquids – editor's note) through the pipeline, that is, with minimal transportation costs.

NKNK has strong long-term relations with Nizhnekamskshina (Nizhnekamsk tire plant), which for several years is a part of the Tatneft and is the main consumer of our synthetic rubber in Russia. In the framework of a long-term agreement, Nizhnekamskneftekhim supplies isoprene, butadiene and chlorobutyl rubbers for the tire plant. In plans — the expansion of assortment of delivered prducts. Currently, we are actively cooperating with Nizhnekamskshina for the testing of new rubber — functionalized SSBR. We hope that its successful tests will allow Nizhnekamskshina to become his first customer. Besides, our companies are working to increase the use of SKI-3 rubber due to substitution of natural rubber exported from Asian countries. At the same time, the tire manufacturing complex of Tatneft is annually shipped with about 80 thousand tonnes of raw materials for technical carbon production.

As for new projects with Tatneft, they are primarily connected with the construction and development of oil refining complex TANECO, as well as the plans of the plant development — the construction of an olefin complex. The implementation of two major projects at one site will surely bring a positive synergy effect for both companies.

Close cooperation between producers and consumers is especially important in such difficult situation in the Russian economy. Therefore, we believe that the more our companies will have points of contact — technical, industrial and commercial connections — the better will be for both companies and Tatarstan in general.

'The development drivers of the company have long been determined'

At the beginning of March in Moscow, under the chairmanship of Arkady Dvorkovich, there have been the meeting of the working group on the elaboration of the Concept of creation of innovative production center Innokam. As Dvorkovich noted, this project is a major industrial cluster, and therefore, this issue has been transferred at the federal level. What role is assigned to NKNK and whether the transition of the project to the state level will help to solve the issue of future financing of the ethylene complex?

Indeed, the regional project for the creation of Innokam is a pilot for the Russian Federation in terms of the creation and subsequent funding of the cluster as a point of industrial growth of the country. Now it is being prepared a decree of the Russian government, which will adopt a detailed strategy of development of the territory and the sources of funding for infrastructure projects. And the specialists of Nizhnekamskneftekhim play a great role in the forming of proposals for the inclusion in the strategy of Innokam. I will say that, in addition to the company, major projects included in this cluster, are owned by TAIF-NK, KAMAZ and Tatneft.

For our side, we propose to include several large-scale infrastructure projects in the federal programme: first, it is the construction of a bridge across the Kama river in the area of Sokolka village and at the same time — the construction of a part of the federal highway bypassing the cities of Nizhnekamsk and Naberezhnye Chelny. Second, the capacity expansion of the Kama railway junction, the reconstruction of the bridge over the Zay river and capacity expansion of Nizhnekamsk — Chistopol road. Another proposal concerns the reconstruction and construction of roads in Nizhnekamsk and Nizhnekamsk municipal rayon, also an important project is the reconstruction of all roads in the industrial zone and BSI.

And, perhaps, one of the major infrastructure projects that we offer is the construction of the main product pipeline Yamal — Volga Region. It will allow providing uninterruptedly us and other petrochemical enterprises of the Volga region with the most valuable raw material NGL, the delivery of which is expected from the Yamal Peninsula.

These projects are considered by the Head of the Secretariat of Deputy Prime Minister of the Russian Federation Arkady Dvorkovich, they have already been instructed about their inclusion in the Concept of development.

Vladimir Mikhailovich, what are the predictions for the near future? What will be the driver for the development or, on the contrary, will slow down the implementation of current and strategic projects?

Today, the Russian economy is experiencing hard times: the decline in oil prices in the world, economic sanctions, higher interest rates on loans — all this has a negative impact. Therefore, it is unlikely that someone will be able to say with certainty how ultimately it will happen. As for the general expected trends, sooner or later, the oil is expected to begin to regain its position. In its turn, its cost will have a direct impact on the exchange rate of the Russian ruble, and this will affect the level of inflation and interest rates.

The prospects of the company development have been determined – it is the projects connected with increase of volumes and efficiency of production of rubber

If to speak about prospects of development of the company, they have long been determined and have been voiced by the leadership of the Republic and TAIF, and the company itself: it is the projects connected with increase of volumes and efficiency of production of rubber, as well as the strategic project — a new olefin complex.