President of Russia Dmitry Medvedev: Good afternoon Andrei Igorevich!
I want you to tell me how your company’s work is going: are there any new interesting projects at home or abroad? And I am referring, of course, to the problems associated with the international financial crisis. How much has this affected the activities of your group – do you have any ideas on how to minimise the harmful effects of this process?
chairman of the Board of Directors of Evrokhim Company andrei Melnichenko: A few words about the fertiliser industry in which our company operates. Our sector has a turnover of 300 billion rubles a year. It provides approximately three percent of foreign exchange earnings for Russia. Accordingly, the industry has seen major changes since the early 90s. At that time the level of production was approximately 17 million tonnes. We were able to maintain those levels – today the industry produces more or less the same amount. However, there has been a general decline in demand…
Dmitry Medvedev: More or less the same as the Soviet period?
Andrei Melnichenko: In the Soviet period we produced approximately one million tonnes more. Along with this there was widespread reduction in demand during the mid 90s in the domestic market and the sector was faced with the following situation: domestic demand was reduced by nearly a factor of 10, so instead of supplying 10,5 million tonnes we supplied only about 1, 5 million. Such was the situation.
But the industry has found its place. Today Russian companies produce 20 percent of global exports, that is they have a large volume of sales on a global scale and a real impact on the problems of food security. That's where we are.
Accordingly, what issues have accumulated and where have problems arisen? Over the past 20 to 25 years it is by and large true that no new company in our sector was built in Russia. In other words, the investment process itself did not develop. This is one of our big problems.
A second big problem is linked to the fact that the system of bringing our products to consumers on the domestic market and to agricultural businesses was almost destroyed – a lack of storage facilities is a limiting factor that prevents us from meeting the needs of agriculture. Perhaps this is the main problem that our industry has faced so far, a lack of investment.
Dmitry Medvedev: This is certainly linked with historical problems. This has nothing to do directly with the problems occasioned by the current liquidity crisis. Has the crisis nevertheless affected you and, if so, to what extent?
Andrei Melnichenko: If you want to talk about the current situation, about the current financial crisis, then for example now is the time for Brazil to buy fertiliser. In normal times such countries import a large amount of our product. At this time they would have already purchased about seven million tonnes of fertiliser, whereas now they have purchased slightly more than one. In other words, this means that …
Dmitry Medvedev: … there is a decline in consumption, and quite an important one.
Andrei Melnichenko: A large decrease in consumption and it is very difficult to predict what the yields of certain countries will be next year. And this causes an excessive amount of goods including for Russian producers – and this is also a big problem.
Dmitry Medvedev: And the domestic market does not alleviate these problems, that is you cannot operate in the domestic market more intensively than you did before?
Andrei Melnichenko: We are ready to meet any potential demand in the domestic market. There are also problems in the domestic market. That is, the country has had a great grain harvest, but again the financial crisis has affected this in a negative way. There are certain problems concerning the export of grain, in other words there are now problems with using the grain that has accumulated. And as a result of well-known events our farmers are denied access to financial resources and of course this is also a source of concern.
However supplies for the domestic market are growing and we will do everything we can in that direction.
Dmitry Medvedev: Good. Despite these difficulties what major projects do you have?
Andrei Melnichenko: Despite the difficulties we have major projects. With regards to our company in particular, we produce about 20 percent of Russia’s fertilisers. However, over the past five years we have contributed 40 percent of all the investments that have been made in the industry in Russia. We will continue to do so. For example, our investment programme over the next four years amounts to about 150 billion roubles.
Two large landmark projects that we are implementing include building a new plant for the production of potash fertiliser from scratch that will produce 4 to 6 million tonnes of production in the Volgograd region. This represents two and a half billion dollars in investments. This is something that has not been done either in Russia or abroad over the past 20 to 25 years. Our work is in full swing.
The second large project is being implemented in the Republic of Kazakhstan and in general we will focus primarily on the CIS markets. Last week I reported on our project to the country’s leadership. We have their full support. We plan to start mining phosphate ore in the Karatau deposits, where they also have certain difficulties. Since Soviet times the volume of production has dropped by about a factor of 10. So we plan to procure raw materials in the Republic of Kazakhstan and deliver them to our Russian companies. We also plan to build a complex that could produce fertiliser for Russia and other CIS countries. This is a real integration process, i.e. two and a half billion dollars over six years.
Dmitry Medvedev: Good. Large projects are certainly useful, both for us and for Kazakhstan. Thank you.