Rafinat Yarullin: 'First half of the year was record-high in terms of financial results'

Feast of petrochemists, or dances of post-covid prices

If at the very beginning the pandemic imposed a lot of restrictions on oil production and petrochemistry, then as it came out of it, it gave exporters the luxury of high world prices. Their growth turned out to be so exorbitant that by increasing production volumes by an average of only 2%, enterprises were able to get fantastic incomes. As usual, Rafinat Yarullin, the director general of Tatneftekhiminvest-holding JSC, reported on who earned money and how in the price rally on the foreign and domestic markets at the regular meeting of the board of directors. It was chaired by President of Tatarstan Rustam Minnikhanov.

“The first half of the year was record-high in terms of financial results," the head of Tatneftekhiminvest-holding pleased the audience. “Revenue from sales has reached a maximum and is expected to reach 1,1 billion rubles. In general, the petrochemical complex has already received the same amount of revenue for six months as for the whole of 2016.”

Immediately, slides lit up on the screen, from which it followed that in recent years, three or four fuel and energy companies have been slowly approaching the milestone of 1 trillion rubles after the significant 2016 year. But in this half-year, world prices jumped up, and after that, the revenue of all players automatically jumped.

“Large-capacity chemical enterprises expect the maximum level of revenue, profit and taxes. High results are mainly provided by a sharp increase in prices," Yarullin confirmed.

Later, he clarified that this year the world prices for most types of polymers have updated the historical maximum, and the cost of carbamide (mineral fertilisers) has approached the record mark of $400 a tonne. Hence, there was an increase in the prices of food and construction materials in the world. “Following the global prices, prices on the domestic market have increased. The increase in wholesale prices for motor fuels, polymers, rubbers amounted to from 13% to 50%," Yarullin said, showing how the global drive has rocked domestic prices.

The cream of the global conjuncture went to the federal treasury. According to Rafinat Yarullin, the total tax deductions of basic enterprises to the budgets of all levels for the first half of the year amounted to about 300 billion rubles. This is by 23% higher than in 2019. However, the consolidated budget of Tatarstan received a little more than 10%. “For the first half of the year, 39 billion rubles were paid," Yarullin said, adding that payments recovered to the level of 2019.

Plus 102%, or production rate recovering more slowly

In the first half of the year, the production of products of basic enterprises of petrochemical complex increased by 2% compared to the corresponding period of 2020, Rafinat Yarullin said. Strictly speaking, the production rate has not increased much, that is, demand is recovering slowly. So, in the first quarter, production volumes generally showed a negative trend — minus 3%. In other words, a slow recovery began on world markets only since the second quarter.

For example, Tatneft increased its production volume by 101% compared to the level of the pandemic year. Over 13,2 million tonnes were extracted. In relation to the pre-covid 2018, the level is 93%. “As the economy recovers, OPEC is agreeing to increase production volumes. In the second quarter, Tatneft increased by 8% compared to the first quarter," Yarullin said.

Along with Tatneft, tyre manufacturers and the Chemical Plant Karpov demonstrated a recovery growth. The tyre manufacturers produced 6,2 million units of products. “The production of truck tyres is 5% lower than in 2018, passenger tyres — by 13%. Weak demand hinders growth," Yarullin explained.

The petrochemical complex of Tatarstan worked above the pre-covid level. For example, Nizhnekamskneftekhim PJSC not only showed an increase of 116% by 2020, but also exceeded the pre-pandemic level by 102%. Nizhnekamskneftekhim turned out to be one of the leaders in the dynamics of industrial growth. Nizhnekamsktehuglerod worked well — 125% to the level of 2020. Strong growth in the group of leaders was shown by the Kazan plant of rubber products KVART (114% compared to the level of 2020), Nefis Cosmetics — 110% , Ammonia — 105%, TANECO — 101%.

“They were able to increase production even compared to the pre-covid 2019 year," said Rafinat Yarullin.

For example, the production of butadiene rubbers increased by 27% at Nizhnekamskneftekhim, and the production of polycarbonates increased by 9% at Kazanorgsintez PJSC. Ammonia increased the production of ammonium nitrate, urea at the level of last year — this is 384,000 tonnes of urea and 255,000 tonnes of ammonium nitrate. High prices ensured sales growth in all sales areas. “First of all, the applications of republican agricultural producers are satisfied," Yarullin said.

Finding the golden mean

The global price environment has a disastrous effect on the domestic market, the head of the Tatneftekhiminvest-holding believes.

“The Russian government has introduced protective export duties and set the maximum permissible price level. But these are point-based situational solutions. The manufacturers of plastic products made a proposal to support the industry in the face of rising prices for polymers, but there is no result. Housing construction is limited by high prices for metals and wood. System solutions are needed that will allow exporters to profit from high world prices, and on the other hand, limit inflation in the domestic market," Yarullin said. “Now these measures work for the federal budget, as it happens when setting export duties. We need them to contribute to the benefit of other industries, otherwise we risk losing them.”

China, while limiting domestic prices, cancelled the VAT recovery for the export of steel pipes. And they began selling certain types of metals from state reserves, the speaker noted.

“People against Shell”, or How environmentalists can disrupt investment projects

The carbon tax, which will be introduced from 2026, may become a threat to the financial well-being of exporters.

“In July, the European Commission published plans to introduce a cross-border carbon tax. The system testing begins from 2023. From 2026, the tax should come into force," Yarullin said. “There is no direct threat to republican companies yet, but the industry is under pressure from shareholders and public organisations.”

As an example, he cited a sensational case when eco-activists “People against Shell” won a lawsuit that obliged the company to reduce carbon emissions. It should reduce them by 45% by 2030. On the other hand, companies in Tatarstan are increasing investments in environmental projects. Nizhnekamskneftekhim approved a programme with a funding volume 1,5 times higher than the previous one, Yarullin said. He explained that banks and funds are beginning to refuse to finance projects that have a negative impact on the environment. “Green bonds” are gaining popularity. Uralkali, SIBUR and Polymetal International attracted green lending. There is a lot of work going on at Tatneft.

Dismantling? This is to Reform.

Turning to Tatarstan projects, the president gave the floor to a guest from Yekaterinburg. Grigory Frich, the president of GSK Reforma (Repair and Construction Group PLC), offered services for dismantling and clearing industrial territories. According to him, the company carries out design and survey work, removes engineering networks, conducts blasting operations, recultivates sites. The company has recently opened a branch in Kazan.

“I believe that we should also develop a production process culture. At TANEKO, we saw how the disposal of reinforced concrete products goes. Everything related to complex objects must be dismantled and the sites prepared. Albert Anvarovich, if there is a need, it is necessary to attract professionals," Rustam Minnikhanov attracted the attention of the head of the ministry of industry and trade of the Republic of Tatarstan, it is still unclear who will be dismantled first.

Then Alexander Bobrakov, the sales director of Maersk Eastern Europe ApS, presented the possibilities for transshipment of export cargo by sea in containers. The advantage is that transportation costs are reduced, and the delivery speed increases. The president of Tatarstan instructed large enterprises of the Nizhnekamsk industrial hub to establish work with the company. The head of Nizhnekamskneftekhim PJSC, Ayrat Safin, suggested that everyone consolidate efforts in this direction.