The Zagorsk Pipe Plant was the only company that was able to increase the production of large pipes in 2018. The company recently entered the pipe market and quickly surpassed its competitors. What is the reason behind the plant's sudden rise?
A reporter informs that the biggest producers of large pipes in Russia decreased their production by 25% in 2018. The Moscow PostThe decline in production is attributed to the completion of Gazprom’s major Nord Stream 2 and Turkish Stream projects. The only market player that notably increased its output is the Zagorsk Pipe Plant (ZTZ). The company, which entered the market relatively recently, tripled its production to 491,000 tons. How did they achieve this?
ZTZ plans to supply pipes for Gazprom’s Power of Siberia, Power of Siberia-2, and South Stream projects. The plant also aims to increase the export of large pipes from 307 tons to 30,000 tons this year. In the upcoming months, the company expects to complete accreditation for the supply of Transneft, which accounts for 14% of the consumption of large pipes in the country.
Rivals believe that ZTZ is underpricing, effectively lowering the market. However, the company's commercial director, Dmitry Simankov, stated in March this year that the domestic market's product prices allow for covering all costs and generating profit.
Contracts with Gazprom
The Zagorsk Pipe Plant, with a capacity of 500,000 tons of large pipes per year, was established in the Moscow region in 2015. The first contract with Gazprom, worth 7.4 billion rubles, was signed in May 2017.
In January 2018, ZTZ received an order from Gazprom for the supply of 100,000 tons of pipes. To accomplish this, in 2017, the state monopoly suspended some contracts with the Chelyabinsk Pipe Rolling Plant (ChTPZ), the Pipe Metallurgical Company (TMK), the United Metallurgical Company (OMK), and the Izhora Pipe Plant, deeming their prices too high. The Zagorsk Pipe Plant proposed to supply pipes to Gazprom with a 13-15% discount.
At the end of 2018, Gazprom directly contracted ZTZ for the supply of 500,000 tons of large pipes for the Kovykta-Chayanda section of the Power of Siberia gas pipeline. Earlier, ChTPZ, TMK, OMK, Izhora Pipe Plant, and ZTZP declined to participate in the tender for the supply of 602,000 tons of pipes due to the low offer price. The maximum amount of the contract was 47.4 billion rubles. Following that, Gazprom awarded almost the entire order to ZTZ, revising the conditions to more favorable ones, according to reports. RBCThe reasons for this decision were not disclosed. Could Gazprom be colluding with ZTZ?
According to the Unified State Register of Legal Entities, the founder of ZTZ is its CEO Denis Safin. The enterprise is in the same group as the Insulation Pipe Plant (ITZ), of which Denis Safin’s father, Galalkhak Safin, is the president. In 2017,businessman“Reported that at the end of 2016, a 25% blocking stake was acquired by a classmate of President Vladimir Putin, co-founder and partner of the law firm Egorov, Puginsky, Afanasiev and Partners (EPAM) Nikolai Egorov. Could he be Safin’s secret force negotiating with Gazprom and Sberbank?
At that time, ZTZ owed Sberbank 5 billion rubles. However, after Egorov became a shareholder, Sberbank delayed the start of payments to 2018, and also lent ZTZ another 1 billion rubles. Egorov is known for his friendship with the chairman of the board of Sberbank German Gref.
In March 2018, it was reported by the media that Yegorov, who was also a co-owner of the Antipinsky Oil Refinery, planned to sell his stake due to the revocation of the license from OFK-Bank, where he was the largest shareholder. According to sources, The Moscow Post, it was also about the sale of ZTZ shares. However, they might have just started a rumor in the market to undermine ZTZ's reputation as a serious competitor.
Old pipes instead of new ones and criminal cases
The group, which includes the Zagorsk Pipe Plant and the Insulating Pipe Plant, are becoming the main players in the market and the main suppliers of Gazprom. However, the companies' reputation is not perfect. In September 2017, Denis Safin was accused of fraud, and a criminal case was opened against him. He was put under house arrest and accused of misusing subsidies from the Ministry of Industry and Trade totaling 133 million rubles.
According to Safin, this money was used to pay off interest on a loan. In November of the same year, the case was closed, and Safin was released from custody. The money was returned to the state.
The insulating pipe plant was involved in a scandal related to the construction of the Transneft oil pipeline to the port of Ust-Luga. Transneft’s contractor for the supply of large-diameter pipes was Industrial Technologies. Instead of new products, the company purchased used pipes in various regions of Russia at a low price and new ones of lower quality in 2010-2011.
The purchased pipes were delivered to the Insulation Pipe Plant, where they were cleaned of rust, old insulation, and defects were removed. Then, false markings of Chelyabinsk Pipe Rolling Plant OJSC were applied to the products.
The damage to Transneft’s subsidiaries – Spetsmornefteport Ust-Luga LLC and Nevskaya Pipeline Company LLC, the operator of the oil terminal in the port of Ust-Luga, was estimated at 4.56 billion rubles. Director General of Industrial Technologies Pavel Zakrevskiy was sentenced to two years and six months in a penal colony. Vasily Nesterenko, commercial director of Industrial Technologies LLC, and his subordinate, manager Mikhail Vladimirov, received five years and four and a half years in a general regime colony, respectively. Employees of the Insulation Pipe Plant were not held accountable. It would be very interesting to know why.
It seems that Gazprom doesn't mind the reputation of its contractors, who are trusted with contracts worth billions. Maybe Gazprom provides ZTZ with old pipes for restoration, and then buys them as new ones. Of course, they wouldn't do this just for Safin's sake, but they might try it for kickbacks. This is just a guess, but everything seems too easy for ZTZ and Denis Safin.
