Rustam Minnikhanov: 'No matter how difficult it can be, TAIF Group works for the future’
The Tatarstan president participated in a teleconference about the results of annual general meetings of TAIF Group’s companies’ shareholders
Due to restrictive measures taken to halt the further spread of the epidemic of the novel coronavirus infection that seized the whole world, the annual general meeting of TAIF JSC shareholders was offline like last year. In late April, participants in the meeting summed up the financial and economic activity of TAIF Group’s companies in 2020, while the final meeting with the president of the Republic of Tatarstan took place via teleconference on 21 May. Rustam Minnikhanov was presented summaries of Group’s performance in 2020 and in the first quarter of 2021 and reported on development prospects of Russia’s petrochemical sector that opened due to the possible merger of gas and petrochemical businesses of the two largest players of the Russian market — TAIF Group and SIBUR Holding PJSC. Read more in Realnoe Vremya’s report.
2020 turned out to be one of the toughest for TAIF Group
The novel coronavirus infection, which seized the globe in a few months and was declared a pandemic, seriously impacted the economy of some companies and entire sectors and countries. The global harm of COVID-19, production shutdowns and restrictions imposed including on commercial communication between countries, a collapse of prices for products of oil refining and petrochemistry is assessed at trillions of US dollars.
“For the first time in the history of our Group, we received 21 billion rubles of net loss with over 37 billion rubles of sales revenue, EBITDA totalled minus 2 billion rubles,” said Director General of TAIF JSC Ruslan Shigabutdinov in his speech.
The economic performance of TAIF Group in 2020 was significantly impacted by a drop in the national currency’s rate — the Russian ruble — and an unprecedented fall in the value of securities, which led to a foreign exchange loss of 30 billion rubles and a negative revaluation of securities at more than 40 billion rubles.
$9bn for socially important projects
In 2020, despite all the hardships, TAIF Group fully met all its commitments. Taxes and duties paid to all budget levels and extra-budgetary funds in 2020 totalled 44 billion rubles, including over 9 billion rubles were transferred to Tatarstan’s consolidated budget.
Another nearly 44 billion rubles were allocated by Group to finance socially important projects of the republic, including about 6 billion rubles for charity, sponsorship, creation and maintenance of social and cultural venues and financial assistance. Also, Group spent over 370 million rubles to fight the coronavirus infection from April to December last year.
Since the establishment of TAIF Group, the total amount allocated for socially significant purposes has exceeded 9 billion US dollars.
“It is comparable to the costs incurred by SIBUR Group for the creation of the Tobolsk petrochemical complex, including ZapSibNeftekhim," the director general of TAIF JSC cited the figures.
Consolidating efforts and increasing development rate
Despite the difficult economic situation that was developing in 2020, TAIF Group's companies maintained the continuous operation of their production facilities. The number of employees not only was not reduced compared to 2019, but even increased by 271 people. By the results of the pandemic year, the average monthly income of employees of the companies and enterprises also increased by 6%, reaching almost 64,000 rubles at the end of the reporting period.
At a time when many large companies announced a freeze or temporary reduction in the implementation of their investment programmes, TAIF Group, on the contrary, was increasing the pace of implementation of new projects included in the Strategic Development Programme for the period up to 2030, as well as the renewal and modernisation of existing production facilities. The total amount of planned funding exceeds 1,8 trillion rubles. The strategic development programme of TAIF Group clearly meets the plans announced by Vladimir Putin for the development of petrochemical industry of Russia.
“During the reporting year, the amount of investments in fixed assets, including repairs, exceeded 78 billion rubles, which is by 47% more than in 2019. In the plan for 2021 — more than 123 billion rubles," said Ruslan Shigabutdinov.
The schedule for the investment programme implementation is not only strictly maintained, but even accelerated as quickly as possible, including through attracting additional borrowed funds. By 2030, upon completion of the Strategic Development Programme, the net revenue of TAIF Group is to grow to 1,8 trillion rubles a year, and the amount of tax payments to the budgets of all levels to exceed 132 billion rubles, including at least 59 billion rubles to be allocated to the consolidated budget of Tatarstan.
More than 1,5 million tonnes of plastics and almost 600,000 tonnes of rubbers
These are the production results of the petrochemical component of TAIF Group in 2020. The effect of constant work on the modernisation and improvement of existing capacities and the construction of new production facilities in the field of oil and gas processing and petrochemistry, the development of new types of products is impressive.
“In 1995-2020, TAIF Group increased the production of light oil products by more than 2 times. The production of monomers was increased almost 3 times during the same period, and the production of polymers — 5 times," said Ruslan Shigabutdinov, the director general of the Group's parent company, TAIF JSC.
The production of plastics has increased by 5,6 times in 25 years, and the production of rubbers has increased by 3,6 times.
Kazanorgsintez PJSC: more than 1 million tonnes of commercial products in 2020
The index of the physical volume of commercial products produced by Kazanorgsintez PJSC by the results of 2020 amounted to 98,8% compared to the results of 2019. This is more than 1 million tonnes. The capacity utilisation rate reached 96,67%.
At the same time, the volume of polyethylene production decreased by 2,9% compared to the previous reporting period and reached almost 727,000 tonnes in physical volume.
“It was produced 515,138 tonnes of low-pressure polyethylene, which is less than the level of 2019 by 10,962 tonnes, 199,411 tonnes of high-pressure polyethylene (less by 10,571 tonnes), 12,168 tonnes of savilene (more by 568 tonnes). The decline in the production of polyethylene was due to the short supply of raw materials. In 2020, the supply of ethane from Tatneft PJSC decreased by 21,300 tonnes, the supply of LPGs decreased by 38,000 tonnes compared to the previous year," said Rafael Safarov, the chief engineer of Kazanorgsintez PJSC.
Rustam Minnikhanov immediately became interested in the reasons for the short supply of raw materials. It was explained to the president of Tatarstan that the reason was in the forced reduction in oil production and, as a result, associated gas at the Minibaevsky field of Tatneft PJSC. There was a period when only 13-14 tonnes of raw materials per hour were supplied instead of 21. To date, the situation has stabilised.
By 7,723 tonnes of polycarbonate more were produced than in 2019. The phased modernisation of production allowed to increase the volumes to 81,354 tonnes by the end of 2020. The ultimate goal of the modernisation is to increase the production capacity to 100,000 tonnes of polycarbonates a year.
The decline in world prices for polyethylene by more than 17% compared to 2019 led to a decrease in the revenue of Kazanorgsintez by 8,8 billion rubles. Minus another 887 million rubles compared to the previous reporting period — the result of the decrease in sales of polyethylene. These losses were slightly offset by a 6,8% decrease in the cost of sales. The main reasons for this are lower prices for raw materials and their supply volumes.
“By the results of 2020, revenue from the sale of commercial products decreased by 9,6 billion rubles compared to last year and amounted to 62 billion 793 million," said Rafel Safarov. “By the results of 2020, net profit amounted to 8 billion 607 million rubles, which is by 3 billion rubles less than in 2019.”
He also noted that the company pays special attention to the quality of its products. The share of certified products by the results of 2020 in the total volume of commercial products was 89,8%.
“Despite the difficult situation, in 2020, the Company continued to invest. So, the volume of capital investments in 2020 amounted to more than 6 billion rubles without VAT," said the chief engineer of Kazanorgsintez PJSC.
For example, the Ethylene Plant is upgrading its production facilities to allow the processing of propane as a raw material for pyrolysis. At the Bisphenol A Production Plant, the construction and installation works are underway to modernise the production of isopropylbenzene. The main volumes of modernisation works have already been carried out at the Polycarbonate Production Plant. At the plant for the production and processing of high-density polyethylene, one of the reactors is being upgraded with an increase in capacity from 70 to 220 thousand tonnes of products a year. In 2021, Kazanorgsintez will not only continue all these works, but also start implementing another large-scale investment project: the construction of an autoclave unit for the production of savilene and low-density polyethylene, with a capacity of 100,000 tonnes a year. To increase the efficiency of production, the construction of the 250 MW CCGT power generating unit has been started, the main fuel for which will be syngas — a by — product of production that was previously flared. This will not only increase the efficiency of power supply to the production facilities of the complex, but also significantly reduce the burden on the environment. For environmental protection, by the way, according to the results of last year, the costs of Kazanorgsintez amounted to almost half a billion rubles. The total gross emissions into the atmosphere, water bodies, as well as the limits of water consumption and waste generation in the company are strictly controlled and do not exceed the established standards.
Two billion rubles have also been allocated by Kazanorgsintez PJSC for the implementation of measures to ensure industrial safety, including the replacement of worn-out equipment, bringing the workshops to the requirements of the rules and regulations imposed by Rostechnadzor, as well as for improving the reliability of heat and power supply, improving the reliability of security systems and the maintenance of fire and rescue units and gas rescue squad.
Nizhnekamskneftekhim PJSC: main blow of the pandemic hits rubber production
At the beginning of May 2020, the commodity stocks of rubbers at Nizhnekamskneftekhim PJSC exceeded the storage capacity and reached critical levels. The coronacrisis forced a significant part of production-consumers both in Russia and abroad to discontinue. Quotations for products declined significantly. It was possible to avoid the danger of a shutdown due to the postponement of major repairs at a number of plants to an earlier date.
“Despite all the difficulties of the past year, as a result of maintaining the rhythm of production and innovative developments, more than 2,4 million tonnes of commercial products were produced in the reporting year 2020, 9th million tonne of propylene, 11th million tonne of SKI-3 rubber, and 19th million tonne of ethylene were obtained," said Ayrat Safin, the director general of Nizhnekamskneftekhim PJSC.
In total, in 2020, Nizhnekamskneftekhim produced 593,000 tonnes of rubbers and 743,000 tonnes of plastics.
The company's revenue in 2020 amounted to 148 billion rubles, sales profit — 20,5 billion rubles, net profit — 4,4 billion rubles.
“The increased financial burden in the conditions of high volatility of exchange rates led to the formation of a negative exchange rate difference in the amount of 16 billion rubles, which significantly affected the amount of net profit," Ayrat Safin explained the financial results.
The total amount allocated by Nizhnekamskneftekhim to finance the projects, modernisation, technical re-equipment, reconstruction of existing production facilities and construction of new ones in 2020 exceeded 60 billion rubles, which allowed the company to enter the top 10 of the investment efficiency rating according to NKR credit rating agency together with the Agency for Social Analysis and Forecasting. Among the largest investment projects being implemented, there are the construction of the EP-600 complex, the production of fifth-generation divinyl-styrene rubber (DSSK) with a capacity of 60,000 tonnes, and the construction of the 495 MW CCGT-TPP.
“Directing the main efforts on production and investment activities, Nizhnekamskneftekhim always pays special attention to the issues of resource and energy efficiency, the problems of ecology and environmental protection. Total expenditures in these areas in 2020 alone amounted to about 5 billion rubles," said the director general of Nizhnekamskneftekhim PJSC.
The beginning of 2021 inspires some optimism, but to ensure the stability of the complex, which is of great importance for the country's economy, Nizhnekamskneftekhim and the industry as a whole need state support. In particular, the manufacturer asks the following:
- to introduce a reverse excise tax on the production of synthetic rubbers;
- to finalise the tax legislation regarding the possibility of obtaining Certificates of Registration of a person who performs operations for processing ethane and liquefied petroleum gases on the basis of the Agreement on the implementation of investment projects concluded with the ministry of energy of Russia both by the organisation that processes ethane and liquefied petroleum gases itself, and by a company that is interdependent with it;
- to finalise the mechanism for obtaining state support for producers of synthetic rubbers in terms of subsidising transport costs for the export of products;
- to assist in signing the agreement on the implementation of the corporate programme for improving competitiveness under the project 'Technical re-equipment of halobutyl rubber production up to 200,000 tonnes a year', which gives the opportunity to attract financial resources at a preferential interest rate;
- to extend the antidumping customs duties on plastic imports adopted in 2020 for a period of 1 year;
- to make a positive decision on the property tax benefit for 2020 for investment projects implemented by Nizhnekamskneftekhim, in the context of incomplete execution of tax payments in 2020 due to a critical decline in the performance indicators of Nizhnekamskneftekhim under the influence of the consequences of the coronavirus pandemic.
The director general of Nizhnekamskneftekhim PJSC appealed to the president of Tatarstan with a request to assist in solving these issues at the federal level. Rustam Minnikhanov promised to do everything possible for this.
The quality of the oil received for processing is catastrophic
Another significant problem during the meeting was voiced by Director General of TAIF JSC Ruslan Shigabutdinov. He drew the attention of the president of Tatarstan to the disastrous situation with the quality of the oil received for processing at TAIF-NK JSC.
“Currently, there are no technologies for advanced deep conversion of heavy oil in the world, so today oil refineries in the world use oil with a density no higher than 860 kg/m3 for advanced deep conversion. However, at the moment, the system of main oil pipelines of Transneft at TAIF-NK receives low-quality oil, not suitable for its advanced deep conversion due to the extremely high density, which reaches 878 kg/m3," said Ruslan Shigabutdinov.
Over the past 20 years, TAIF Group has invested heavily in the modernisation and improvement of the TAIF-NK complex, focusing on the processing of local heavy oil. The best modern technologies make it possible to effectively cope with the “black gold” quality not lower than Urals.
“The low-quality oil received by TAIF-NK separates into layers even before its processing and leads to the formation of a significant amount of precipitation in oil pipelines and reservoirs, and its further processing inevitably leads to the formation of super-heavy asphaltene deposits in pipelines, uncontrolled coking of control and safety valves, and other equipment. The processing of such oil can lead to catastrophic explosion and fire situations. In this regard, since February of this year, we have been forced to reduce the load of oil refining by 25% — from 900 tonnes per hour to 680 tonnes per hour," the director general of TAIF JSC emphasised. He appealed to the president of Tatarstan with a request to support the TAIF Group's proposal to amend the scheme of regulatory oil cargo flows approved by the Russian ministry of energy, so that TAIF-NK receives the oil of a quality not lower than the Urals brand with a density not exceeding 860 kg/m3, a sulphur content not higher than 1,4% of weight and with a colloidal instability index of not more than 0,6-0,7.
“The topic of oil quality is really difficult. And it cannot be solved without some serious decisions on the processing and production of synthetic oil. We've discussed this topic with Albert Kashafovich (Shigabutdinov — chairperson of the board of directors of TAIF JSC, chief adviser to director general for development at TAIF JSC — editor's note), and I've discussed this topic with Nail Ulfatovich (Maganov — director general and member of the board of directors of Tatneft PJSC — editor's note). I've also discussed this topic with Sazonov (Aleksey Valeryevich — state secretary — deputy minister of finance of Russia). We are in unequal conditions: those who has light oil, their output (of light oil products — editor's note) is also different. But taxation is the same for everyone. We are working on this topic together with you. We have no other way. We need to find a solution. In any case, not only our oil, but also that of other companies is going to get worse: more and more sulphur, more and more heavy oil. This topic should be solved," the president of Tatarstan responded to the voiced problem.
Ruslan Shigabutdinov: “Combining the petrochemical businesses of TAIF and SIBUR is an additional competitive advantage and investment opportunity”
The companies, both in Russia and in the world, are gradually returning to normal operation. Such conclusions can be drawn based on the results of the first quarter of 2021. TAIF Group also notes balancing of the situation. In comparison with the first quarter of 2020, for the period from January to March inclusive of 2021, the Group's net revenue increased by 36 billion rubles and reached 206 billion rubles. Sales profit increased more than fourfold — from 5 to 23 billion rubles. The amount of taxes and duties paid has also increased significantly in comparison with the first quarter of 2020 and amounted to almost 12 billion rubles, including 4,5 billion rubles to the consolidated budget of the Republic of Tatarstan, which is three times higher than in the same period last year.
An important event in the spring of 2021 for both TAIF Group and the Russian petrochemical industry as a whole, as noted by Ruslan Shigabutdinov, is the signing of an agreement on the main conditions for the possible merger of TAIF Group's petrochemical businesses and of SIBUR Holding PJSC. It was held on April 23 in Moscow, in the presence of Tatarstan President Rustam Minnikhanov and Russian Deputy Prime Minister Alexander Novak.
“The creation of such combined company will give a huge synergistic effect, ensure the effective distribution of raw materials flows necessary for the full utilisation of the production capacities of TAIF Group and for the further development of the petrochemical industry of the Republic of Tatarstan. This will guarantee the implementation of the projects provided for by the approved Development Strategy of TAIF Group until 2030, expand the range of products with a significant increase in tax revenues to the consolidated budget of the republic," the director general of TAIF JSC expressed confidence.
“We fully support the strategic partnership with SIBUR, while fulfilling the terms of the agreement that have been signed. The issue of joint presence in the market is an additional competitive advantage, plus the investment opportunities of SIBUR in the implementation of all our planned and agreed plans. In this part, we also support your decision on the consolidation of assets," Tatarstan President Rustam Minnikhanov said.
Summing up the results of the meeting, Rustam Minnikhanov positively assessed the results of the activities of TAIF Group's enterprises in 2020. According to him, despite the pandemic, the enterprises showed good economic indicators.
“Many projects make it possible not only to increase production volumes, but also to get a higher quality of products," said Rustam Minnikhanov. “This also applies to the modernisation of the production of Kazanorgsintez PJSC, the creation of own energy capacities. In general, all this gives serious positive results.
The president of Tatarstan also stressed:
“Today, it is important to know what high-tech margin projects we can implement with the help of modern, including digital, technologies.
The president of Tatarstan thanked the management of TAIF Group, shareholders, and labour collectives for their well-coordinated work and contribution to the development of the economy of Tatarstan.
“In modern conditions, it is important not just to be present on the market, but also to expand production, master the production of new products, increase the wages of employees — all this is aimed at increasing the well-being of our citizens, improving the quality of life in general," said Rustam Minnikhanov.
In conclusion of his speech, Rustam Minnikhanov thanked the entire team of TAIF Group for their well-coordinated fruitful work and great contribution to the development of the economy of the Republic of Tatarstan and the Russian Federation. He assured that the leadership of the republic, despite the difficulties caused by the coronavirus pandemic, will continue to support TAIF Group's companies to ensure their stable and uninterrupted operation.
In turn, Ruslan Shigabutdinov stressed that both the management and the entire team of many thousands of the Group are well aware that the year 2021 also does not promise to be easy. However, with the clear programme of activities, well-balanced Development Strategy and a wealth of practical experience, TAIF is confident and optimistic about the future.
TAIF JSC's board of directors has been re-elected
Immediately after the conclusion of the final meeting, an organisational meeting of the board of directors of TAIF JSC was also held via video conferencing. The key agenda was the formation of the new management body. Rustam Minnikhanov was the first to take the floor:
“I would like to thank the board of directors for their professionalism during the difficult period of the coronacrisis. In the run-up to our big projects, integration, an experienced manager is needed. I appeal to you with the proposal to elect Albert Kashafovich Shigabutdinov as chairperson.
This proposal of the president of Tatarstan was supported unanimously. As well as the proposal to confirm the powers of the current director general of TAIF JSC, Ruslan Shigabutdinov.
Rustem Sulteev, the first deputy director general of TAIF JSC for production and commercial activities, was again elected Deputy Chairperson of the board of directors. Also, the board of directors of TAIF JSC was elected and the committees of the board of directors were approved.