“OUR LONG-TERM PROGRAM IS A KEY STABILISATION DRIVER DURING RECESSION PERIOD AND, AT THE SAME TIME, A STABLE GROWTH FOUNDATION”

- Mr. Suslov, PJSC Togliattiazot shareholders’ annual meeting was held in April. How would you evaluate its results?

- It should be noted that this year the meeting was held in a smooth manner without any incidents, although the situation during preparations was unstable. I hope that meetings will continue to take place in this calm and working environment.

- In the previous years, sometimes it was impossible to gather the shareholders. In your opinion, the smooth running of the meeting is related to Sergey Makhlay’s decision not to propose himself as a member of the company’s new board of directors?

- You know, we received calls after the meeting, including from your colleagues, and people said: “How come, Mr. Makhlay is not a member of the Board of Directors.” But he hasn’t been on the list of candidates! How could he be elected to the board? I believe that people got used to associate TOAZ with Sergey Makhlay so much that they failed to believe the changes. The speculations, which appeared as part of ongoing information attacks, have also played their role.

As for Mr. Makhlay’s decision, we certainly regret it, as the enterprise performed well under his direction: we entered the renovation stage and started to launch new projects. On the other side, we understand his reasons and also hope that, due to this decision, the conflict will be defused.

- In 2016, TOAZ proceeds reduced by 30%. What are the reasons for the decline in financial performance?

- The year was rather difficult for all players of the Russian mineral fertilizers sector. Following a few years of growth, the markets suffered a sharp slowdown, the prices reduced by at least 50%. Rouble stabilization also affected the markets: currency gain and its rouble equivalent went down, as compared the previous year. The situation with transit of our goods across Ukraine led to an increase in transportation costs. Nevertheless, we viewed the situation as a challenging one. All departments worked with utmost efficiency. We worked over cost efficiency, and I believe that we successfully completed this complex year, having maintained total sales, which amounted to 3.4 mln tons of ammonia and carbamide in 2016.

- How did you manage to stabilise the production without losing output?

- We simply continued our business and increase the efficiency of all business processes. We had to change something, abandon non-core units and reorganise the staff structure. However, we chose not to cut social expenses and the implementation of an investment programme. We allocated over RUB 6 billion to upgrade the enterprise. This enabled us to achieve good results with a stable increase in ammonia output, starting from 2012, and reduce gas consumption rate.

- TOAZ reported about its plans to increase carbamide and ammonia output by introducing new facilities. Do you think there is a need for an output increase in the current market setup? Will these plans affect the upgrade of the existing facilities?

- Our long-term program is a key stabilisation driver during recession period and, at the same time, a stable growth foundation. Upgrade and re-equipment of facilities allow us overcome the market slowdown and prepare for market dynamic. All production facilities will undergo major in-house overhauls on a scheduled basis.

At the moment, we are mainly aimed at developing our basic infrastructure. Increasing carbamide output is a strategic aim, which will enable TOAZ to reduce the logistic dependence on ammonia pipe, and, in particular, to increase its market share. Regarding ammonia: we continue to develop the project of KBR unique technology, which is unique for the Russian chemical industry. The unit will provide us with extra 500,000 tons of ammonia per year. Also, this is an extremely efficient solution both in terms of production and environmental aspects. The project has already passed public hearings.

- How will unit upgrade increase the total ammonia capacity of the enterprise?

- The modernisation programme refers to every ammonia production unit. We intend to complete it until 2021, which will lead to a 30% increase in ammonia production.

- TOAZ reported that it will invest RUB 6.7 billion in modernisation and overhauls in the current year. Does it mean that you are positive about further implementation of the investment programme, regardless of changes in the Board of Directors?

- TOAZ investment programme has been gradually implemented according to plans, developed by the Board of Directors. This is one of our key priorities, and we scrupulously observe it. In 2017, the amount of funds allocated for major overhauls and upgrade has increased, as compared to the previous year, according to our plans. Also, we have to start the construction of the third carbamide unit this year. In the coming years, there are plans to considerably increase investments in new construction, as both the carbamide unit construction project and the ammonia unit output enhancement project will enter the major phase. In total, TOAZ investment programme until 2022 will amount to RUB 80 billion.

- What are the plans regarding TOAZ core products output in the current year? What is TOAZ forecast regarding ammonia and carbamide prices on the global market in 2017?

- The programme for this year has been made up with account to the fact that most units (both ammonia and carbamide ones) underwent upgrade or overhauls, therefore we expect stable unit operation with estimated capicity. We plan to reach the target of over 3 mln tons of ammonia in 2017. If the market situation is favourable, there will be a considerable growth of carbamide production, where we had a major overhauls of the first, and then the second unit in the last two years. Certainly, the other factor is logistics. At the beginning of the year, we had to stop the units, but once the transit has been resumed, they reached the design capacity.

- What are the terms and period of the agreement on ammonia transit resumption with Ukrkhimtransammiak? Have the parties withdrawn any of the previous claims to each other?

- Transit has been restored on the terms, set forth in the applicable agreement between TOAZ and Ukrkhimtransammiak. Basically, we maintain a constant dialogue with our Ukrainian partners and expect stable operations.

- You earlier said that the situation with transit is somehow repeated on an annual basis. TOAZ also understands that reducing the logistic dependence makes sense. What is the situation with this issue? Is the project for the construction of a terminal on Taman still relevant?

- Undoubtedly, completing the construction of the first, and then the second stage of ammonia and carbamide transshipment complex in the port of Taman will produce a favourable effect on logistics, and, consequently, on our costs. The federal centre is supporting us, the project is included in the federal programme. The working is ongoing.

- Last year, Togliattiazot might have become somewhat renowned for the first time due to reduction of staff. How has Togliattiazot staff size changed in 2016?

- As I already mentioned, last year we focused on adapting the enterprise to the new economic situation. Naturally, the process affected the staff structure. To maintain efficiency and high performance we held in-house restructuring, which resulted in the reduction of TOAZ staff by 11%. The bulk of downsize is related to the retirement of non-production staff. Also, we cut down the security unit, as we transferred its functions to a security agency, in order to comply with the requirements of the law. We managed to transfer most employees from our non-core production facilities to other units (after professional training or development). This year we continue to reduce staff size and increase efficiency; still, we recruit candidates with specific specialisations to the core production unit.

- Regarding the economic situation, is it possible to reduce investment in the social portfolio and reduce salaries and benefits?

- Despite having a difficult financial year, we maintained our commitment to high social standards, which have been consistently referred to as the region’s best terms of employment. On the whole, salaries are at the level of the previous year. We exceed the average rate in Togliatti by 30%. Last year we launched the voluntary health insurance programme in addition to our own healthcare system. At present, we are developing a new group agreement, which will enter into force this year. I have repeatedly noted and I will repeat again that TOAZ will not reduce social costs!