OUR MODERNIZATION SCHEDULED UNTIL 2020. SERGEY MAKHLAI: "TOGLIATTIAZOT" IS NOT FOR SALE

Last March Sergei Makhlai became the Chairman of the Board of Directors of JSC "Togliattiazot". And from now on, all the strategic decisions concerning JSC «Togliattiazot» are taken by him personally. Why did he accept the proposal of shareholders to be at the head of the Company? Sergei Vladimirovich provides answers to above and other questions to the correspondent of “Rossiyskaya Gazeta”.

Sergei Makhlai: I have been working with JSC «Togliattiazot» since the beginning of the 1990s, during which time I have learned better the chemical industry, the fertilizer market, and I know how this business works. Since the early 1990s the Company has come a long way and achieved a serious headway. I hope this success is my contribution as well. Thus, when shareholders asked me to take the lead of JSC «Togliattiazot», there was no hesitation from my side. For me it is a very important opportunity to influence the future of the company I connected my life with. This is a huge responsibility and a serious challenge.

- How will your election as a head of JSC «Togliattiazot» influence on the management structure of Your Company? The market rumor is that the company is still actually managed by your father, Vladimir Makhlai.

Sergei Makhlai: Today, renovation of company’s management structure is just the first priority. The development of a modern management system that meets international standards, including accounts, is now finished, and in summer we are going to phase it in. Changes will be gradual, but quite fast. We hope to complete this work by 2014. The shareholders defined a 7-year program for me, and in 7 years they will decide, how I coped with it.

As to Vladimir Nikolayevich, he completely withdrew from the management last year, and so to say, he retired to have a due rest. We are very grateful to him for his hard work and contributions he made to the company’s development. Since last March, all the strategic decisions concerning JSC «Togliattiazot» have been taken by me. Being the Chairman of Board I have a lot of work, in particular, to promote the company to the world and Russian markets.

Day-to-day management is the responsibility of Evgeny Korolev, General Director of Corporation "Togliattiazot", who is a hired manager. This is a standard corporate management structure. The car should have one driver, or it will not go far.

- JSC «Togliattiazot» started to operate in the late 1970s of last century and its plants got obsolescent in many parameters. What are you planning to do for modernization of the production facilities?

Sergei Makhlai: Since last year, JSC «Togliattiazot» have been implementing the program of capital repairs, modernization and reconstruction of production units. This program is estimated until 2020. The first stage focuses on the capital repair of units to ensure their trouble-free operation. Then we will proceed to reconstruction and modernization of ammonia plants, which will increase their capacity up to 1600-1800 t/day, and reduce energy consumption and hazardous emissions. In 2013-2014, we will realize the modernization of urea plants; their output will increase almost twice as much – up to 5,200 t/day. Currently, we are actively searching for contractors who could perform the work with high quality and within maximally tight schedule. We are also exploring many other new technologies that can be in demand at the Russian market.

-One of the Company’s traditions, established by your predecessor, is an utmost attention to the social sphere. Does it prevent the company to survive in the severe competition?

Sergei Makhlai: I think it rather helps. The long-term business strategy must include the social decisions. This condition cannot be dispensed with, if you want to create a strong, professional and motivated work team. Almost four hundred labor dynasties are working at JSC «Togliattiazot»; the people are pleased to work here. It would be impossible without a strong social infrastructure.

Now ToAZ is one of the core urban enterprises for Togliatti and one of the largest taxpayers in the region. We are not temporary workers. We have our share of responsibility for life in the city and the region: work places and stable wages, social infrastructure, used not only by our employees, participation in social projects. Finally, it is a serious work to improve the environmental standards of production.

Today ToAZ is one of the most socially-oriented enterprises in Russia, it is recognized by all. Some minority shareholders require us to abandon the social objects and reduce the social expenditures, motivating it by considerable expenses for the "social programs". I want to say in full responsibility that we would not agree to this. People should know that the favorable conditions are waiting for them at the enterprise.

- You have mentioned the environmental issues. This subject is now at the center of public attention and governmental bodies. In recent years, JSC «Togliattiazot» have been often blamed for creating serious environmental problems, for poisoning Togliatti.

Sergei Makhlai: This subject is really acute. Negative impact on nature, unfortunately, is inevitable for any, more or less large-scale production. Our goal is to minimize this impact through the implementation of modern environmentally friendly technologies.

JSC «Togliattiazot» allocate quite considerable funds for environment protection. In 2010, the expenditures amounted to 206 million rubles, in 2011 - 233 million rubles; in 2012 JSC «Togliattiazot» will spend 265 million rubles for this purpose. It did not include investments in modernization of current systems of environment protection for which we spent 12 million rubles last year. This year we are going to allocate 29 million rubles. We have one of the best wastewater treatment systems in the region. The above mentioned system continues to improve.

Yet at the phase of the plant construction in 1970s, it was taken into account that Togliatti had already a sufficient number of large industrial enterprises. Therefore, "Togliattiazot" complex was brought out of the city, it was located 12 km away from the nearest residential areas. The wind rose was kept in mind, so that the plant’s emissions could not reach the city in any situation. Thanks to this, the operation of the plant has no negative impact on the atmosphere of Togliatti. Any independent expert will confirm that it is not JSC "Togliattiazot" that poisons the air in Togliatti. Our atmospheric emissions are about 60% of the volumes permitted by public control authorities.

"Ecological map" is used in the information war against our company not due to concern for people. The real problems are of no interest for our opponents. There are publications claiming that we allegedly poison the water with zinc, although the plant does not work with zinc, that it was the plant that destroyed the forest around the Togliatti, but not the tragic fires in summer 2010. Honestly, this cynical and ignorant lie is addressed to intimidate the ordinary citizens. It has nothing to do with solving the real environmental problems.

-At the beginning of the year the press wrote a lot about the conflict of JSC "Togliattiazot" with "Ukrhimtransammiak", the Ukrainian company, which cut off the transportation of your ammonia via ammonia pipeline Togliatti - Odessa. How are your business relations with the Ukrainian side developing now? Are there any difficulties with the ammonia transportation?

Sergei Makhlai: I would not call it a conflict; it was rather a complicity, misunderstanding. Unfortunately, we suffered losses for this reason, as well as the Ukrainian side. But the situation was successfully resolved, particularly, due to the timely intervention of Russian authorities. Now our mutual relations have a normal course of development, I think that we will not face the recurrence of such situations in future.

- JSC "Togliattiazot" have been making efforts for more than a decade already to obtain independence from the Ukrainian pipeline and start-up the port terminal on the Taman peninsula in the Krasnodar Region. Will you continue these efforts, and what are the chances still that the terminal will function in the short term?

Sergei Makhlai: The Company is considering the construction of the port terminal as a major project. Access to the Black Sea is not a question of competition with the Ukraine, but the matter of goods delivery (not only chemical) to the international markets. And that is of strategic importance for Russian economy. Therefore, the port terminal on the Taman Peninsula is a part of government program for development of Russian sea ports.

Since we have started this project, the governmental authorities and many fellow production enterprises have been convinced that it was beneficial and they backed this initiative.

Implementation of any large project is always associated with a large number of approvals that objectively complicate and delay the process. We are working on it with all parties concerned, first of all, with provincial authorities. I hope, we will manage to start-up the port terminal in the short term.

- JSC "Togliattiazot" remain the largest independent producer of mineral fertilizers in Russia, although in media there is often information about the interest to the Company on the part of large vertically-integrated holding companies, both Russian and Western. Do you intend to keep independence, or are you considering options of merging with Russian and foreign competitors?

Sergei Makhlai: Our strategy remains unchanged - at this stage we are not going to sell or merge with other companies, either Western or Russian. Such rumors, to my thinking, are purposely broadcasted to mislead the governmental authorities and the market.

Shareholders have elected me not to sell the Company, but to develop it.

Today it is fashionable to capitalize the company and then sell it at a profit. This is a short-term strategy. For some it is acceptable, but not for us. We are in this business for long and focusing on a long-term strategy, where the capitalization is not the main priority.

Our modernization program estimated until 2020 contains no word on attracting the outside investors from the chemicals industry. The merging occurs when there is a lack of your own resources for the development, or such merging has a synergy effect. JSC "Togliattiazot" is a unique and self-sufficient enterprise historically established as an independent complex and still maintaining that status.

No one can define yet additional advantages of merging with other manufacturers, except for the capitalization increase, that we are able to do ourselves.

We have everything that is necessary for the development and promotion on the market. Entering foreign structures will turn JSC "Togliattiazot" into the “resource appendage” for implementation of third-party interests.

- The press, from time to time, has information about the attempts to raid JSC "Togliattiazot". In particular, it is currently reported that a new attack on the company has been continuing from the beginning of 2012. How far does this information agree to reality?

Sergei Makhlai: Raiding and everything associated with it under the Russian law means a criminal offense. The task of law enforcement agencies is to investigate crime and catch criminals; the task of court is to punish them. I can say that since 1996 there have been multiple attempts to put unlawful pressure on shareholders, the company's management and the work team in order to strive for control over the company. Interested parties change, but the tactics of these actions is repeated from time to time, and people are well aware what actually happens. The staff and management team of JSC "Togliattiazot" have a good experience of opposition to such attempts of taking possession over enterprise. Unfortunately, the government agencies are involved in all this, and that means the waste of taxpayers' money.

- Recently the media has published an appeal of "Evrotoaz Limited", Irish company, which believes that JSC "Togliattiazot" unlawfully has deprived it of its shares. What can you say about this?

Sergei Makhlai: Currently, the litigations on «Evrotoaz Limited» claims are continuing in Russia and abroad, so it would be incorrect now to give estimates and comments.

- Your company is one of the largest taxpayers in the Samara region. The new governor, Nikolai Merkushkin, has recently come to the region. He was administering the Mordovia for long and is known as a follower of a "strong hand" policy and active intervention in the business. How are you planning to build relationships with the new regional authority?

Sergei Makhlai: JSC "Togliattiazot" is strongly engrained in the life of Samara and Togliatti; we have always belonged here in a good sense. The Company is one of the largest taxpayers and last year we transferred almost 2 billion rubles to the regional budget. We support effective social facilities which are open to all residents of the region. We provide sponsorship of regional sports and culture.

Our approach is as follows: the company does not go into politics, but it works and develops the business. We look forward to cooperating with Nikolai Merkushkin, who, no doubt, will take decisions in favor of the Samara region and its stable development. He has a wide, successful experience of manager and the highest reputation for this. And we will do our best to ensure that the region continues to prosper.