Russia Monitor is a review of the most important events related to Russian internal and external security, as well as its foreign policies.
Date: 30 November 2020
Sechin’s “Steel” Business Raises Serious Doubts
Rosneft seeks to build a large metal plant in the Far East to supply steel sheet to the Zvezda shipbuilding yard. The thing is yet that construction of the former will cost more than that of the latter. The mere idea raises severe doubts while possibly being another example of how Igor Sechin’s oil company might embezzle public money.
The head of Rosneft submitted further details at a meeting with Vladimir Putin on November 24. As always when Sechin goes to the Kremlin, he seeks to get the green light from the president for his company’s new, perhaps state-funded mission. Sechin put the issue bluntly, saying “this project needs financing.” This is all due to the Zvezda shipbuilding yard, currently being built, that needs considerable supplies of steel sheet. The cost of the shipbuilding facility is some 146 billion roubles. But there have long been much controversy and money-wasting accusations around the project. Rosneft is in charge of the construction of the giant shipbuilding facility in the Russian Far East. State-owned company Rosneftegaz holds an 82.4 percent stake in Zvezda, Rosneft-owned bank WBRR has another 13.4 percent while Gazprombank – the remaining 4.6 percent. So far this was Rosneftegaz that pumped most in the shipyard, namely 67 billion roubles in paid-in capital and 8.8 billion roubles in loans. The shipbuilding facility is planned to become operational by 2025 to build the biggest-sized vessels and thus produce Russia’s cargo fleet capable of sailing along the Northern Sea Route.
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To manufacture such vessels, Zvezda will need between 300,000 and 350,000 tons of steel sheet per year, according to what Sechin told Putin. The problem is where to get it from. The solution is to build a metal plant as steel sheet cannot be transported from the European part of Russia as the cargo would be too wide to go through too narrow tunnels of the BAM railway. For the time being, Zvezda buys steel sheets in Asia. The answer to this conundrum might be a metal facility in Primorsky Krai, wholly owned by the Zvezda shipyard and possibly financed by a consortium of shareholders. The planned facility would produce 1.5 million tonnes of steel sheet and steel pipe products per year. Its estimated cost stands at $2.2 billion, or 167 billion roubles. A metal plant of the size suggested by Rosneft will be built no sooner than in three years yet six years is far more plausible option.
The problem is that Russia does not need so much steel. The industry produces a lot and with such a saturated market it is hard to find buyers. The only option is to sell it outside. But even if to take into account markets within the logistic range of a new plant, China, South Korea, and Japan manufacture less costly and better-quality steel. It is hard to come up with any business justification for this venture instead of using some already existing local metal plants that struggle with sales problems. It would be sufficient to upgrade them slightly to adjust to the needs of Zvezda in a both cheaper and faster solution.
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