Ferrous Metallurgy 1991-2000
Russia holds fourth place in the world in ferrous metallurgy production volume after China, Japan, and the USA. However, in the USA, the share of so-called integrated production of analogues of giant Russian enterprises accounts for 55 percent of industry production, whereas it accounts for more than 90 percent in Russia. The share of more effective mini-factories, which process industrial scrap, is no more than 10% in Russia. The level of investments in metallurgy exceeds the average for Russian industry by 20-25 percent. However, this does not change the fact that labor productivity at Russian metallurgical enterprises is 40-70 percent lower than in the USA, Japan, and Europe. For this reason, more than 2 million people work for the branch; only in China and Ukraine are there more metallurgists per capita. The drop in ferrous metallurgy production from 1992 through 2001 was only 9 percent, and Russia now produces 60 million tons of ferrous metals. In a rating of Russian export goods, ferrous metals shared fourth and fifth places with base metals after petroleum, gas, and engineering production. Steel, cast iron, and rolled steel are officially exported for $6-6.5 billion per year, which is approximately 50 percent of all Russian production.
HISTORY: 1991-2000
The history of ferrous metallurgy in the country reflects the formation of capitalism in Russia in the best possible way. The seven giant metallurgical enterprises scattered across Russia from Cherepovets to Sverdlovsk worked on the instructions of the State Planning Committee, and there were no shareholders, only directors. Privatization started, the enterprises began to search for shareholders, but they still cannot stop.
1991
The general director of Karaganda Metallurgical Enterprise, Oleg Soskovets, is transferred from Kazakhstan to Moscow to the post of minister of metallurgy of the USSR. He takes his assistant Vladimir Lisin with him from Karaganda.
In June 1991, 400 enterprises of the metallurgical complex of the USSR organize a closed joint-stock company Metals Stock Exchange. Its initial investments become the starting capital for many present trader structures.
In August 1991, a broker of the Russian commodity-raw materials stock exchange Mikhail Zhivilo, together with his brother, creates the joint-stock company Metallurgical Investment Company (MIKOM). It is rumoured that their father, a high official in the Ministry of Metallurgy, stands behind the Zhivilo brothers and that western credits for reconstruction of the industry's enterprises have to be pumped through MIKOM.
The Corporation of Ferrous Metals Producers (Roschermet) is founded on the basis of the Ministry of Metallurgy of the USSR. Oleg Soskovets tries to push the industry to develop according to the 'Chinese model," that is, the creation of a monopolistic state company. On December 31, the Ministry is broken up and Soskovets leaves for Kazakhstan, where the position of first vice-premier awaits him.
1992
Privatization in the industry begins with the sale of 34.3 percent of the shares of the Saldinsky Metallurgical Factory (Sverdlovsk region), the industry's oldest enterprise.
Graduate of the Academy of the National Economy Vladimir Lisin becomes vice-president of the offshore company Trans-CIS Commodities Ltd. The process of building the Trans World Group (TWG) metallurgical empire, for which Lisin will be managing its Russian affairs until 1997, begins.
On March 27, 1992, the former minister of ferrous metallurgy of the USSR, Serafim Kolpakov, creates the International Union of Metallurgists.
In June, the head of the Orsko-Khalilovsk Metallurgical Enterprise (NOSTA), Pavel Gurkalov, asks his young assistant Yury Grinin to create an affiliated trading company, NOSTA Metallhandels, in Cologne. Within eight years, this simple operation will cost Grinin his life.
At the end of the summer, Oleg Soskovets manages to quarrel with reformers in both the Russian Federation and in Kazakhstan. He loses the post of vice-premier and returns to Moscow.
1993
The first privatization scandal in the industry flares up in February. The labor collective of the Chelyabinsk Metallurgical Enterprise (MECHEL) accuses its management of an illegal attempt to buy up a controlling interest in the enterprise through the joint-stock company Tomet. The general director of MECHEL, Rafshat Maksutov, is forced to leave.
At a meeting of the government in March, vice-premier Georgy Khizha offers to create vertically integrated holdings consisting of coal and steel producers. A project of the Metal-Coal Concern, a monopoly on the scale of the Commonwealth of Independent States, appears in the government. It is not clear who backs Khizha's project; therefore, just to be on the safe side, the metallurgical lobby rejects the project, together with Khizha, who soon retires.
Egor Gaidar's government begins large-scale privatization in metallurgy. Thirty-five percent of the shares of the West-Siberian Metallurgical Enterprise Zapsib and 27 percent of shares of the Nizhny Tagil Metallurgical Enterprise (NTMK) are exposed for auction in May; 35 percent of the shares of the Kuznetsky Metallurgical Enterprise are exposed in November.
Metalloinvest Bank is created in the summer of 1993 on the initiative of Soskovets. Its purpose is to take away the business of clearing mutual nonpayments in metallurgy from the MENATEP group with the help of state credits. The bank will pass from hand to hand until Russian Credit takes over control it.
1994
The first major collision between head of the State Committee for the Management of State Property (GKI) Anatoly Chubais and Oleg Soskovets. In February, the head of GKI orders a change in the privatization plan of the Magnitogorsk Metallurgical Combine (Magnitka) and blocks the publication of a decree on the allotment of investment credits and export privileges to enterprises being privatized.
In March, shares of the Cherepovets Metallurgical Enterprise (Severstal) are exposed for an All-Russia check auction. The financial director of Severstal, Alexei Mordashov, organizes the firm Severstal- Invest to buy up the enterprise's shares at the request of general director Yury Lipukhin.
Rumours about a split inside the TWG trading group connected with the name of businessman Lev Chernoi appear. The most incredible versions range from the dismissal of Mr. Chernoi from TWG to the withdrawal of foreign shareholders from the group. At this particular time, the pool of managers that will determine TWG's policy in Russia and the world for the next five years is formed.
For the first time, ore mining and processing enterprises that do not have an outlet to export markets declare their rights to a share in metallurgy profits. The chairman of the board of directors of the joint-stock company Karelsky Okatysh, Sergei Syun'kov, announces the preparation of a cartel agreement among the Kovdorsky, Kostomukshsky, and Olenegorsky ore mining and processing enterprises. The result of this announcement is paradoxical: redistribution of property begins at ore mining and processing enterprises, Boris Ivanishvili and his group Russian Credit manage to concentrate large assets, and the revolt of three ore mining and processing enterprises is suppressed in one year by Severstal.
In August 1994, unknown structures get 17 percent of shares of the Novolipetsk Metallurgical Enterprise (NLMK) through the CSFB bank. Investors pay $1 million for a block of shares. The local authorities and TWG, which manages the enterprise, demand the cancellation of the deal. The mysterious investor (after one year it becomes clear that is was Vladimir Potanin's group Interros and Boris Jordan's Sputnik fund) does not reveal himself in any way. The war at NLMK is expected to ripen for two more years.
In the winter of 1994, vice-premier Oleg Soskovets reaches the peak of his career. On New Year's Eve, Boris Yeltsin, addressing employees of the State apparatus, says "Soskovets is my successor." The president was not joking then.
1995
In April, the Russian joint-stock company Unified Power Systems of Russia ( RAO EES Rossii) begins a large-scale action against the Magnitogorsk Metallurgical Combine (Magnitka): EES tries to create a club of company creditors who have run up debts of more than 500 billion rubles. Magnitka refuses to cancel the bills, but several banks interested in increasing bill circulation at the enterprise-Incombank, Tveruniversalbank, and Tokobank-oppose EES.
Scandal in the joint-stock company MECHEL. The largest shareholder, the investment fund Social Protection of the Population of the Chelyabinsk Area, consolidates 50 percent of MECHEL's shares, displaces general director Vladimir Prokudin at a shareholder's meeting, and appoints Victor Cherednyakov as acting director in his place. Prokudin does not recognize the results of the meeting, and MECHEL will spend a year in a war between the two general directors.
On April 7, a consortium of the largest Russian banks presents an offer to the government to hold mortgaging auctions on state shareholdings of industrial enterprises.
In May, the Seversky Tube Plant (STZ), the first, in the country, and so far alone among the metallurgical enterprises in Russia, issues ADR for a blocking share holding. Flushing out shares from foreigners does not save the managers of the enterprise from a change of owner: several years later, the MDM Group found the ADR abroad and bought them up.
On June 2, the banks send the government a list of shares that are of interest to them for mortgaging auctions. The list includes Magnitka, MECHEL, Severstal, NLMK, Zapsib, NTMK, and Oskolsky Electrometallurgical Enterprise (OEMK) from the ferrous metallurgy enterprises. The directors of the majority of these enterprises demand through Soskovets to be excluded from the list.
The conflict between Anatoly Chubais and Oleg Soskovets heats up. The desire to unite all unprivatized share holdings of metallurgical enterprises into the state holding does not leave Soskovets; Chubais insists on their sale. The interests of officials cross again at Magnitka. Its shares are on the list of enterprises brought out to the mortgaging auction, on the list for the monetary auction of GKI, and on " Soskovets' list. At the same time, the results of an auction of Magnitka's state share holding, where TWG has won, are cancelled. After the "rematch," 30 percent of the shares pass to FPG Magnitogorskaya Stal', which is managed by Rashid Sharipov.
On September 25, the list of enterprises exposed for mortgaging auctions is published. NLMK, OEMK, Zapsib, NOSTA, and MECHEL are on it. That very day, Oleg Soskovets leaves for Sochi to see Boris Yeltsin and comes back the same evening with a decree for creating the joint-stock company Russian Metallurgy. Magnitka, Severstal, and NLMK are included in its structure. The appearance of this decree is an open challenge to Chubais. But GKI will win this war, and Russian Metallurgy will remain only on paper.
In October 1995, GKI exposes a 15-percent state package of Severstal for a monetary auction and gives the remaining 5 percent of the state property to the labor collective. The head and owner of Severstal, Alexei Mordashov, behaves peacefully for a while-he trades in automobiles, raises fish in the fishing industry, and sells off Severstal metal little by little. But there is no longer anything to prevent Yury Lipukhin's dismissal: the controlling interest in Severstal is in the hands of Severstal-Invest, which in actual fact belongs to Mordashov.
At the beginning of November, the nonpayment crisis in the industry brings a number of metallurgical enterprises to a full stop. The Korshunovsky and Michailovsky GOKs are at a standstill, Zapsib and Magnitka are not operating because of a deficiency of circulating assets, and the coking batteries have stopped at MECHEL and NOSTA for lack of coal. As a matter of fact, all the ferrous metallurgy enterprises in the country are bankrupt.
On November 17, the first mortgaging auction is held in Moscow. Zapsib, put up for tender, does not attract anybody's attention. Roskred is not only discharged from the auction for Nornickel, but is also rejected ignominiously with a package of MECHEL that the management of the enterprise has redeemed. Vladimir Potanin's group takes 15 percent of NLMK's shares as a pledge.
By exposing NOSTA's state package for sale in December (12.7 percent of the shares), RFFI completes the first privatization of the metallurgical enterprise in the country.
The general director of Zapsib, Boris Kustov, writes a letter to the government in December, demanding devaluation of the ruble, preferential state credits, and the introduction of state regulation of ore prices. He threatens to halt the enterprise otherwise. In his answer, Governor Kislyuk promises "to arrest Kustov for sabotage." In one month, the director will retire.
1996
On February 8, the Capital Savings Bank (Stolichny Bank Sberezheny) declares its interest in metallurgy. Alexander Smolensky's bank manages to take $1 billion on credit for "modernization of the metallurgical enterprises of the Chelyabinsk region" (read MECHEL and Magnitka) at the German "Commerzbank". The deputy head of the Chelyabinsk regional administration, Victor Christenko, actively lobbies for the project. However, neither MECHEL nor Magnitka will see the money.
On February 16, the MIKOM group shows itself in business for the first time. With the support of MIKOM, the former KMK general director, Nikolai Fomin, occupies the administration building and does not let in its head, Evgeny Braunshtein. The know-how to seize an enterprise using judicial officers is being applied in the country for the first time. To be sure, practice makes perfect. With the support of Governor Mikhail Kislyuk, director Fomin is expelled from ÊÌÊ and the MIKOM firm Hermes-Metal-Invest is driven away from the enterprise by an additional issue of 1000 percent of the charter capital. (There is a curious detail: the chairman of the regional legislative assembly, Aman Tuleev, tried to lobby for MIKOM's interests.)
In May, a meeting of Severstal shareholders elects Alexei Mordashov as the general director. Yury Lipukhin was on his way to the meeting, not suspecting his forthcoming dismissal: he considered Mordashov to be his devoted ally.
On June 4, representatives of Tokobank, Lebedinsky GOK, and the trading company Steelteksholding sign an agreement on the creation of the holding Tokosteel. With the support of the head of Steelteksholding, Vladimir Savel'ev, Toko tries to back up the head of the GOK, Vladimir Kalashnikov, who is waging a war against the largest shareholder, Russian Credit. Toko will be ruined in 1997; Kalashnikov will be dismissed at the same time.
On June 20, Oleg Soskovets, together with Alexander Korzhakov and Mikhail Barsukov, are dismissed.
In July, the Moscow Credobank announces its intention to bankrupt Zapsib, which owes it 400 billion rubles. Director Kustov took the credit in 1994; the arrest of Zapsib marketing division accounts gives the bank nothing. The head of Credobank, Yury Agapov, obtained a decree from Boris Yeltsin on state support of the enterprise, but it is never realized. The ill-starred credit will transform both Zapsib and Credobank into bankrupts.
In June, the Alpha group, having bought up Kredobank's debts, tries to enter a bankruptcy procedure against Zapsib; for the time being it is unsuccessful-the enterprise receives a delay.
In December, the head of Glencore, Willy Shtrothotte carries on negotiations with the management of the German Hoesch-Krupp on the sale of part of MECHEL's production. The general director of the enterprise, Igor Toporishchev, opposes it, and the deal, the first and last attempt by western metallurgists to take root on the Russian market, fails.
1997
In February, the governor of Kursk region, Alexander Rutskoi, begins an attack on the Michailovsky GOK, which is controlled by Russian Kredit and its holding Metalloinvest. According to "Kommersant's information, the governor is preparing a change of shareholders through bankruptcy. The conflict is suppressed. Rutskoi is now an ally of Metalloinvest in hard negotiations with the new Communist governor.
In March, MIKOM achieves cancellation of an additional issue of KMK shares dated June 1996 in court. Lawyer Damir Gareev heads the struggle of MIKOM against KMK.
On March 4, the management of NLMK announces its intention to redeem 40 percent of the shares from its shareholder TWG. TWG understands that it will not be possible to prevent ONEKSIM, which owns almost a controlling block of shares, from coming to NLMK. Vladimir Lisin stays at NLMK, face to face with Vladimir Potanin. His chances at first sight are insignificant.
On June 24, the Kemerovo court of arbitration introduces outside management at Zapsib. Alpha-Bank suffers a blow: instead of Alpha-Group employee Boris Kabak, the court appoints an employee of Kuzbassprombank, Andrey Voronin, as a manager. Messrs. Kabak and Voronin will steadily try to displace each other through the courts until Alpha leaves the factory.
On July 3 in Moscow, an attempt on the life of the vice-governor of the Kemerovo region, Dmitry Chirakadze, is made. Two versions exist: the conflict between MIKOM and the management of KMK and the conflict between Alpha and Zapsib (Mr. Chirakadze, previously a partner of Mikhail Zhivilo, was chairman of the board of Zapsib's creditors).
That very day, Inkombank, with the support of TWG, dismisses the head of Magnitka, Anatoly Starikov. The chairman of Magnitka's board of directors, Rashid Sharipov, offers to appoint Victor Rashnikov in his place. Mr. Sharipov will regret the offer more than once: within a year, Victor Rashnikov will initiate a criminal case against Sharipov.
In the summer of 1997, businessman Pavel Fedulev gets a large share holding of Kachkanarsky GOK. intends to resell it to a certain firm Ural - Start (the general director of the GOK, Dzhalol Chaidarov stands behind it). Eighty percent of the sum is transferred to Fedulev, but he does not give the shares back; he also does not return the money. A criminal case is instituted against Fedulev; he is convicted of fraud. This is how the ground for the fight for Kachkanarsky GOK - the loudest scandal of the decade-appears.
On November 24, Boris Yeltsin signs a decree on the liquidation of the joint-stock company Russian Metallurgy.
On September 18, the International Union of Metallurgists led by Serafim Kolpakov holds a press conference; they declare a new configuration of forces in Russian metallurgy without TWG. The alliance is called Union-Metal-Resources (Soyuz-Metal-Resurs; it consists of NLMK (Vladimir Lisin), Magnitka (Victor Rashnikov and Rashid Sharipov), the Krasnoyarsk Aluminium Factory (Anatoly Bykov, Victor Veksel'berg, and Gennady Druzhinin), Sibaluminii" (Oleg Deripaska), Uralelektromed and Gaisky GOK (Iskander Makhmudov). Afterwards, NLMK and Magnitka leave the union, but Zapsib, KMK, NTMK, and the remains of TWG, led by Mikhail Chernoi, Lev Chernoi's brother, join it.
1998
A new team led by Gennady Yunin takes the management at KMK into their own hands. The new governor of Kemerovo region, Aman Tuleev, intends to consolidate Zapsib and KMK. In the middle of July, the MIKOM group bankrupts KMK" and sends an acting observer, Sergey Kuznetsov. It is the peak moment in Mikhail Zhivilo's career: the group is rich enough to buy about 5 percent of the shares of the Savings Bank (Sberbank) on the market and to make the head of MIKOM a member of the bank's board of directors.
At the beginning of August, Vladimir Lisin declares that the TWG group is selling its share holding of NLMK. If it had not been for the crisis that would burst out in three weeks, Lisin himself would have bought the package in September: there was an arrangement about this with TWG head David Ruben. But the controlling block of shares will be sold to Lisin by the Renaissance Group (Boris Jordan has just split the business with Vladimir Potanin), and Nornickel'" and Interros, i.e., Potanin, get the TWG package.
On August 14, Boris Kabak is dismissed from the management of Zapsib for the last time. Igor Frolov from Kuzbassprombank occupies his chair.
At the beginning of September, Russian Credit sells 46 percent of the shares belonging to Lebedinsky GOK to a structure friendly to OEMK-the Swiss company Nacosta AG. Nacosta AG now owns 50.01 percent of the shares, and OEMK owns 41 percent.
In October 1998, the US government starts an antidumping process against Russian producers of hot-rolled steel. Magnitka, NLMK, and Severstal will suffer from it: the market has been closed to them to this day.
1999
On March 11, the Kemerovo court of arbitration prolongs the term of the outside management at Zapsib by 8.5 years and unexpectedly replaces the outside manager. Instead of Igor Frolov, who planned to sell Zapsib's property by auction, Andrey Smol'yaninov, a close acquaintance of Iskander Makhmudov, is appointed.
In April, outside management is introduced at NTMK. The former general director of ÊÌÊ, Evgeny Braunshtein (who had been removed from his position by the MIKOM group) is kidnapped on April 26. Who tortured Braunshtein and why (he escaped from his abductors after several days) remains an open question.
In August, the Federal Service on Matters of Insolvency deprives the outside manager of KMK, Sergei Kuznetsov, of a license. The Office of the Public Prosecutor of Novokuznetsk initiates a criminal case against the management of KMK. They claim that MIKOM was removing money from KMK. Mikhail Zhivilo and Aman Tuleev become enemies.
The Glencore Group is tired of cooperating with MECHEL head Igor Toporishchev who does not want to increase the profitability of the enterprise to the detriment of social programs. The general director retires in October; Alexey Ivanushkin, the head of the Moscow division of Glencore, replaces him.
A certain All-Russia meeting in Nizhny Tagil (which includes deputies of the State Duma and academicians of the Russian Academy of Sciences) recommends that Gazprom and the government consider creating Tube Mill-5000, a mill for manufacturing large-diameter pipes at NTMK.
The court of arbitration of Sverdlovsk region ratifies an amicable settlement between the creditors of NTMK and the enterprise effective November 26. People from Alexander Abramov's company Evrazholding appear at the enterprise; they are still operating NTMK. It is rumored that Iskander Makhmudov asked governor Eduard Rossel for the enterprise for himself, but Mr. Abramov managed to defend his interests at the factory.
In December, the MIKOM group is forced out of the joint-stock company Chernigovets, the largest open-pit coalmine in the area and a supplier for KMK and Zapsib. After the storm at Chernigovets, Mikhail Zhivilo will sell the remaining coal assets to Stilteks and to Avtobank, which controls NOSTA, and will leave ferrous metallurgy.
2000
On January 28, Iskander Makhmudov's team seizes Kachkanarsky GOK. The actual owners of the GOK, Damir Gareev and Dzhalol Khaidarov, considered to be Makhmudov's partners, are accused of stealing shares from the legal owners. The general director of Uralelectromed', Andrey Kozitsyn, is appointed as the new general director of the GOK. It is the first and last public action of "Makhmudov's group" which formally has no relation to ferrous metallurgy. The figure of Mr. Makhmudov, who never appears in public, is instantly demonized: after Kachkanarsky GOK, he is imputed with having an interest in all the enterprises of the industry.
At the beginning of February, the British company Middlesex Holdings PLC and Gazprom subsidiary ZAO Gazprominvestholding declare the creation of a system of electronic steel trading on the Internet. The system will never be launched, but for the next year, the idea of selling metal on the Web stays with Russian metallurgists.
The first fruits of Evrazholding's and Iskander Makhmudov's cooperation show. In February, Yury Zverev becomes an outside manager of KMK. He immediately declares the future merger of KMK with other industry enterprises (read: with Mr. Abramov's holding).
On March 18, the MDM group gets a controlling interest in the Volga Tube Factory from Rosprom. The general director, Rosprom protege Vitaly Sadykov, is replaced by Ivan Li, the future head of the Pipe Metallurgical Company, one of two large groups on the tube market.
On April 13, Pavel Gurkalov is fired from the position of NOSTA general director at a meeting of shareholders. The shareholders of Avtobank and Steeltex dismiss Gurkalov, who was preventing them from getting complete control over the company. NOSTA is first headed by one of the managers of Avtobank, Andrei Andreev, and later by the former director of production at Severstal, Viktor Klochai.
In the middle of April, the joint stock company Izhorskiye Zavody, a member of the Uralmashzavody holding, which belongs to Kakha Bendukidze, sells the Tube Mill-5000 for large-diameter pipe production to Severstal. Severstal carried out its threat to produce pipes for Gazprom on its own, and Gazprom to this day still refuses to sign an agreement to buy pipes from NTMK.
In May, the Interros and Norilsk Nickel groups buy 34 percent of NLMK's shares from the TWG group, which could not come to an agreement with Vladimir Lisin. Interros immediately blocks an additional issue of NLMK shares at the shareholders' meeting. In response, Vladimir Lisin announces the sale of the Stinol refrigerator branch plant to the Italian company Merloni. This "head-butting" between NLMK and Interros will last for a year-Vladimir Potanin does not allow an additional issue, but he does agree to invest $200 million in bank credits in the development of NLMK.
On June 8, Yury Grinin, the head of NOSTA Metallhandels, is killed in Moscow. In two weeks, Andrei Andreev will declare that the NOSTA-Avtobank-Steeltex holding will be registered by the end of 2000. Pavel Gurkalov will become the adviser to the president of the holding.
On August 8, news agencies report that Mikhail Zhivilo has disappeared. This was discovered by law-enforcement agencies. They wanted to arrest him for attempting to poison Aman Tuleev (admittedly, the order for his arrest would be issued only after a month). Instead of Zhivilo, Olympic biathlon champion Alexander Tikhonov and his brother are arrested-both of them are Zhivilo's partners. Zhivilo himself turns up some time later in Paris, but a local court considers the "poisoner" to be a prisoner of conscience and will not extradite him to Russia.
On August 23, Alpha-Eko and Evrazholding sign an amicable settlement on restructuring Zapsib's debt in the Moscow Court of Arbitration. According to the settlement, Evrazholding undertakes to pay Alpha-Eko $110 million and must receive eventual control of Zapsib. Thus, Alexander Abramov, who was still searching for a union with the medium-sized Kachkanarsky GOK one year before, now controls 40 percent of Russian ferrous metallurgy.
On September 20, the MDM Group gets 36 percent of the shares of Kovdorsky GOK, a supplier to Severstal. Severstal has not suffered from MDM Group: the GOK's marketing policy has not changed.
At the end of September, a war for STZ begins. LUKOIL's affiliated bank Petrocommerce and the MAIR group, the largest dealer in ferrous metal scrap, are engaged in a consolidation of shares. The war for STZ will end paradoxically: MDM Group will get it in January 2001 and will create a metallurgical pipe company out of it and VTZ.
In October, it is announced that Severstal has received 45 percent of the shares of the Ulyanovsk Automobile Plant and nearly all of its debts. The arrival of metallurgists in the car industry begins.
On December 9, Vladimir Putin flies to Magnitogorsk to the President's Cup Judo Tournament, which has been organized by Magnitka. In breaks between judo and downhill skiing "the anxious workers" tell Vladimir Putin that "Makhmudov and the Cher brothers are bringing metallurgical enterprises to a halt." The president tactfully answers that "Competition is the engine of progress. But this competition will be conducted within the framework of the law." This is equivalent to a writ of protection for Magnitka: the criminal cases against Rashnikov's team are closed. The kimono that Putin wrestled in is placed in the local museum as a sacred object.
At the end of December, information on the creation of the Russian Steel group appears. The press claims that Iskander Makhmudov has decided to continue the business of Oleg Soskovets and TWG and unite all accessible metallurgical enterprises of the country into a unified structure on the model of Russian Aluminum. The phantom of "the Chinese way" disturbs the industry for the last time.
Later, Vladimir Lisin will informally say that Russian Steel was indeed discussed in circles of metallurgical enterprise owners, but the matter stopped at the consultation stage. The initiative group of the Russian steel partnership will meet one more time this year.
by Dmitry Butrin
PRESENT
In spite of the fact that the main phrase in Russian metallurgy for the last ten years has been "to enter an enterprise" (meaning "to join the distribution of its financial flow"), the real owners of the industry have more or less been determined. But, to tell the truth, they are only now starting to evaluate the practical influence and prospects for development of the industry. A lot of objects of the "metallurgical war" are rapidly losing competitive ability: it is necessary to invest billions of dollars in them, and not to get hundreds of millions out of them.
Theoretically, the process of redistribution in Russian ferrous metallurgy should have ended when each of the nine large metallurgical enterprises of the country-Severstal, ZSMK, NLMK, KMK, Magnitka, NTMK, MECHEL, OEMK, and NOSTA-found an owner. At present, only NOSTA (where on the eve of a full celebration, Avtobank and its companion-in-arms, oil trader Nafta-Moscow, tried to expel a former colleague in a war with the management of the Steelteks holding) has not been redistributed. In one way or another, the rest of the enterprises swore allegiance to their "feudal lord," i.e., to the owner of the controlling interest or accounts payable.
But poor is the feudal lord who doesn't want to become an emperor. The present configuration of forces in ferrous metallurgy has developed during the formation of metallurgical groups of which, besides the centers-the metallurgical enterprises of "the Nine"-suppliers of raw materials and large consumers were supposed to be a part. The strategies of the main players on the market were different. For example, the head of Severstal, Alexei Mordashov, considered that the best way to build the Severstal empire was to create contractual alliances. Severstal would undertake to protect partners in the alliance from possible hardship (for example, to protect state companies from privatization) with its political power, and the partners would not feast their eyes on the competitors of the Cherepovets giant. The general director of Magnitka, Viktor Rashnikov, hoped for the support of power structures and the construction of a vertically integrated company that would unite all metallurgical redistributions in one structure (based on the model of oil industry workers). Alexander Abramov and Iskander Makhmudov, on the contrary, were set on horizontal integration and purchase of coal companies.
So far, no strategy has discredited itself. Although accomplished in different ways, by the middle of 2001, up to 80 percent of the assets relating to the metallurgical industry had been incorporated into six or seven superlarge alliances-empires that have a decisive influence on the market.
Strangely enough, the largest metallurgical alliance in the country, the partnership of the Ural Mining and Metallurgical Company and Evrazholding, seemingly does not exist. In the meantime, this partnership, in many respects constructed on the personal connections of its participants, supervises up to 40 percent of the industry's assets and three enterprises out of "the Nine," namely, NTMK, Zapsib, and KMK, do not hide their intentions to incorporate another couple of giants into themselves.
The alliance of Alexander Abramov and Iskander Makhmudov developed during the struggle for Vanadium, Kachkanarsky ore mining and processing enterprise. Pavel Fedulev, one of the most colorful Sverdlovsk businessmen of the "gangster capitalism" era, deserves to be considered the author of the idea. After leaving prison in Sverdlovsk region (he had done time there for applying a "nontrivial solution" to a conflict with Ural-Start, the buyer of 19 percent of the GOK's shares), the co-owner of Vanadium interfered in the negotiations between the GOK's general director Dzhalol Khaidarov and Alexander Abramov, who was supervising NTMK. Fedulev quickly understood that if Khaidarov had sold shares of GOK to Abramov, his 19 percent would have turned into candy wrappers and apparently drew the attention of Khaidarov's partner and boss Iskander Makhmudov, the co-owner of UGMK, to the negotiating process. Without thinking twice, Makhmudov dismissed Khaidarov from Vanadium, and then Abramov's time to worry came. Instead of GOK, whose largest consumer was NTMK, he was getting the most influential and dangerous competitor at the metallurgical enterprise. Mr. Khaidarov helped Evrazholding resolve the conflict with Eduard Rossel, the governor of Sverdlovsk region, and the Triple Alliance started growing like yeast.
After absorbing the remains of Mikhail Zhivilo's former empire (including KMK and several open-pit coal mines) and purchasing several large coal companies (among them Kuzbassrazrezugol and Kuznetskugol'), the alliance became the largest structure on the Russian metallurgical market. At the same time, the alliance was a partner of Russian Aluminum through the common co-owner Iskander Makhmudov and also with MDM Bank and the MDM Group (the owner of the Pipe Metallurgical Company, Kovdorsky GOK, Kuznetskiye Ferrosplavy, Vostisibugol, and Chitaugol).
The alliance is quite aggressive and aspires to the role of the most influential player in Russian industry as a whole. Thus, it shows unambiguous interest in Magnitka, which is fighting tooth and nail against it, using the authority of the vice-premier Viktor Christenko, governor Peter Sumin, and plenipotentiary Petr Latyshev (who has clashed with governor Rossel and cannot stand Makhmudov).
However, the concept of Iskander Makhmudov as the shadow owner of Russian industry is undoubtedly exaggerated. Serious players in the market speak about the native of Tashkent and former translator from Arabic without special reverence, although not without respect. But somehow people associate Makhmudov (Alexander Abramov is not popular for some reason) with participation in all property redistributions in the country. For example, in August, "Kommersant" faced a unique situation. During a conflict at a medium-sized plant in Sverdlovsk region, both conflicting parties informally assured a "Kommersant" correspondent that they were at war with "Makhmudov's people." And the manager of Lebedinsky GOK, which was in conflict with the local authorities, was trying to convince everyone that "Makhmudov himself had come twice" to the small town where the enterprise was located (probably to personally head the siege). So as not to allow the enemy into the enterprise, trucks fenced in the area in front of the plant's administration building, but Makhmudov did not appear. In one of Moscow's "yellow" newspapers, "Pelevin's theme" (Pelevin is a Russian writer famous for his "virtual characters") was developed seriously, as if Mr. Mahmudov were a collective image, a virtual character, a dragon from fairy tales for second-rate management; actually, Makhmudov was governor Rossel in person.
The other three owners of large metallurgical enterprises still do not show a propensity for horizontal integration according to the Evrazholding model: they themselves are able to construct empires on a level comparable to their competitors. The only thing the actual owners of Severstal, NLMK, and Magnitka (i.e., Alexei Mordashov, Vladimir Lisin, and Viktor Rashnikov) feel a shortage of is powerful political support. If Iskander Makhmudov's close contacts with Roman Abramovich and Eduard Rossel help UGMK-Evrazholding, Messrs. Lisin and Mordashov appoint governors for themselves on their own. Vyacheslav Pozgalev, the governor of Vologda region (where Severstal is located), was previously the assistant to the general director of the enterprise. But there are governors, and then there are governors: Severstal cannot give a protege more influence than it itself has.
However, according to rumors, the general directors of both the Lipetsk and Cherepovets giants have been repeatedly invited to join the Russian government, but have refused. Vladimir Lisin explains his unwillingness to go to the White House simply as a dislike for civil service; Alexei Mordashov says nothing. According to legend, in January 2001, he got an offer to pay for the post of vice-premier with a controlling share of Severstal, but the young manager was not ready for such a radical change of destiny (a millionaire magnate becoming an influential official).
Despite the deficiency of political resources, the empires of the owners of NLMK, Magnitka, and Severstal were effective enough and showed a tendency to growth. For example, in 2001, to everyone's surprise, Severstal acquired assets in the auto industry-the Zavolzhsky Engine Plant, the supplier of engines for GAZ and UAZ. Alexei Mordashov was probably operating in contrast to the head of Russian Aluminum, Oleg Deripaska, who acquired GAZ and Pavlovo Bus and was now asking the price of the Minsk Car Factory. In spite of the fact that, in the corridors of Russian Aluminum, Severstal's purchases were often described by the Russian proverb "Where goes a horse with a hoof, there goes a crab with claws," it was not yet possible to take the technologically important ZMZ away from Severstal. In addition, Mordashov managed to agree with the head of MDM Group, Sergei Popov, that Kovdorsky GOK, the supplier of ore for Severstal, would not change its marketing policy after it had been purchased by the Moscow group. And the coal problem was solved by Severstal quite simply: by lobbying for the idea that privatized enterprises of coal holdings in Komi should be excluded from the list. Mr. Mordashov became the best friend of all coal miners on this side of the Urals (on the other side, Aman Tuleev quickly directed them towards Makhmudov). One more important purchase by Severstal was the tube factories of the Incorporated Metallurgical Company and the Vyksa Metallurgical and Chelyabinsk Tube-Rolling factories. Altogether, this was one-third of the tube market.
Victor Rashnikov's empire is not so large-scale: at present. Only some of the metalworking enterprises of the region work in it. However, Magnitka's main supplier, Sokolovo-Sorbaisky GÎ' is located in Kazakhstan, and it gets on with other suppliers surprisingly peacefully.
Vladimir Lisin, the head of NLMK, also shows no great interest in extensive development; it is enough for him to control KMA-Ore in the region of the Kursk magnetic anomaly and a medium-sized share holding of Lebedinsky GOK. He sees NLMK itself as the basis of the empire. Vladimir Lisin was the first Russian metallurgical magnate to announce a program for modernizing production (we should note that the Lipetsk enterprise is quite modern in comparison with, say, Magnitka or NTMK). NLMK is going to invest more than $1 billion in production development over four to five years. For this amount money, another oligarch would have amassed a fortune for himself. Lisin himself, who once operated the Russian affairs of such a holding, namely, Trans World Group, and successful destroyed it, explains the aspiration to spend money on production simply: in five to seven years, all the empires constructed by his competitors will be noncompetitive because of the technological gap with the West.
However, it was quite difficult for Vladimir Lisin to build an empire until spring 2001. After a two-year struggle against the rebellious leader, TWG at last sold the NLMK shares belonging to it; they were bought by the Interros Group, former opponents of Lisin. It took a year for general director Lisin to convince Vladimir Potanin to invest money in NLMK. True, Potanin did not do it with the help of an additional issue; instead, he gave Lisin credit for $200 million.
The idea of investing in production (regardless of how wild it might seem to the oligarchs) is quite reasonable. For the last decade, money has been mostly removed from metallurgical enterprises, and the supreme achievement of a manager in metallurgy was a press release declaring that "production has been restored, and the enterprise is working rhythmically." It was not too important what the enterprise was working at or whether it would be possible to sell it to anyone. Vladimir Lisin is not without reason proudly called "the professor" in NLMK press releases: in the end, he was the first to make conclusions from a banal consideration.
At the two remaining enterprises of "the Nine" -- OEMK and Mechel-the process of redistribution of properties was completed peacefully enough. OEMK is controlled by Gazprom subsidiary Gazprominvestholding (GIH); and at MECHEL, the trading company Glencore, a reincarnation of the well-known Mark Rich and Co., of their own free will handed authority over to Igor Zyuzin, the owner of the Yuzhny Kuzbass coal company.
At the first sight, Alisher Usmanov, the head of GIH, is a serious enough contender for the role of emperor. OEMK is a hi-tech enterprise. It was completed in 1990 and uses direct recovery technology to produce steel rather than blast-furnace and converter processes. Electrometallurgy is considered the most promising direction for the development of ferrous metallurgy. In addition, the controlling interest in Lebedinsky GOK, the largest iron-ore producer in the country, is at the disposal of OEMK. As far as coal is concerned, it is really not required by OEMK. Nevertheless, Mr. Usmanov behaves surprisingly peacefully and it seems that he is not planning any "territorial captures" (the last attempt was undertaken in 2000, but we will talk about that later). It probably all depends on the actual owner: Gazprom is obviously not going to invest in metallurgy. It could not even help OEMK to lobby for the project of setting up Tube Mill -5000 for the manufacture of large-diameter pipes in Oskol.
The attitude of Alexei Ivanushkin, MECHEL's general director and former head of the Moscow division of Glencore towards constructing holdings is even simpler: it is not interesting. The fact of the matter is that Glencore bought MECHEL as a starting purchase after the second appearance of Mark Rich's empire in Russia in 1996. In the old days, Willy Shtrob, the actual owner of Glencore, together with his chief, Mark Richem, played a no less a role in Russian metallurgy than TWG. However the start at MECHEL obviously did not go right. The German company Krupps refused an alliance with Glencore in Russia, and from that moment, they started to sell MECHEL.
According to "Kommersant" data, a responsible buyer for the relatively efficient though rather small factory was found only in November 2000. Negotiations for the purchase of MECHEL started between Yuzhny Kuzbass and its partner, the owner of the Kemerovo joint-stock company Koks, Boris Zubitsky. Yuzhny Kuzbass now owns the blocking share holding of MECHEL, and Zubitsky, according to rumors, temporarily refused a deal on other papers. As a result, a merger, in the course of which Messrs. Zyuzin and Zubitsky would have become the owners of one more empire, has got stuck halfway. Alexei Ivanushkin obviously does not have to hurry in this situation.
However, the list of potential "emperors" is not exhausted. First of all, besides the huge enterprises producing cast iron and steel out of ore, there are manufacturers producing steel out of scrap metal, and this is an essential force. For example, the Taganrog Metal Works, which is controlled by the Moscow group Alphabet, is rather removed from all metallurgical redistributions: it basically consumes scrap metal. The MAIR Group, which supervises up to 40 percent of Russian used ferrous metals and operates at Tulachermet, has built its business on ferrous metal scrap.
Second, the business of reconstructing processing chains involves such giants as MDM Group and Alpha in metallurgy. The first has already started construction of a metallurgical holding; the second has unsuccessfully tried to seize Tagmet and will certainly try to repeat the attack on other metallurgical enterprises. In any case, both groups have enough administrative resources, which allows money to be converted into industrial assets and then into even bigger money.
For certain, Russian Credit will sooner or later be over its coma and become interested in expanding its empire. Let us recall that the Metalloinvest holding, which is close to Russian Credit, has controlled the Michailovsky and GOKs up to now (Alisher Usmanov tried to buy it to expand his property in 2000, but the Gazmetall holding that he had planned did not become an empire: the purchase failed). In addition, Metalloinvest owns Tulachermet and a number of steel-rolling plants, for example the Orel Steel-Rolling Works, the largest in the country. Thus, the co-owner of Roscred, Boris Ivanishvili, can safely present a claim for the crown of "emperor of metallurgy" in the future.
So you think there are not many relatively rich people in the country who want to become very rich? As long as one of "the Nine" metallurgical enterprises can change owners during negotiations with an influential governor, as long as the owner of an "empire" can in half a year (as happened with Mikhail Zhivilo) turn into a person accused of poisoning the governor, and as long as the fate of a contract worth $1 billion dollars is determined not by the financial efficiency of the project but by its defender in the government, anything is be possible in Russian ferrous metallurgy. The story of enterprises that searched for shareholders for themselves and could not stop is far from over.
by Dmitry Butrin
TRENDS
Although no less than 80 percent of the assets in the metallurgical industry already de facto have an owner who is not going to negotiate these assets, attempts to redistribute metallurgical combines are proceeding. The standard means of seizing control are not as effective any more: only someone who comes up with the most sophisticated way of winning a victory over a contender will achieve success. The time of "artful people" who are experts in the field of the psychology of conflicts continues in metallurgy.
NOSTA has not Found an Owner
In the summer of 2001, the process of redistribution of property entered its most intense stage at the last unshared metallurgical enterprise of the country, NOSTA. In 2000, the consortium of Avtobank and the trading company Steeltex forced out NOSTA's former management. In 2001, sorting out of the relationship started in the consortium; as a result, NOSTA is now shared by completely new people, the Alpha group and Avtobank.
The conflict between member of the Avtobank supervisory council Andrei Andreev and the owner of Steeltex, Vladimir Savel'ev, began in April 2001. The problem lay in politics: Mr. Andreev supported Orenburg region's present governor, Alexei Chernyshev, during the elections, and Mr. Savel'ev did not approve of it. When it was discovered that Andrei Andreev had offered the administration of the region 25 percent of NOSTA's shares (an official communique about it had been given in news agencies), they decided at Steeltex that it was necessary to do something.
Since Steeltex was the main trader of NOSTA, a means of seizing control from Andreev, who controlled 60 percent of the company's shares, suggested itself: bankruptcy. Alpha-Eko was tied in with the process. At first, Alpha turned to a famous specialist in that kind of operation, the head of the Ministry of Finance group, professor of the Higher School of Economics, Alexander Volkov, who developed a bankruptcy plan. The professor claimed they hadn't paid him. When the angry professor published the information about their plans in the press, Alpha reported that they had only a "theoretical interest" in NOSTA.
Within two months, theory turned into practice. On July 19, the Steeltex companies obtained outside observation at NOSTA in the regional court of arbitration. After that, the general director of NOSTA resigned. Then the external manager of NOSTA, Aleksander Gorshkov (who was famous for the bankruptcy of Chernogorneft' in favor of the Tyumen oil company, which was controlled by Alpha) dismissed his successor. A version that governor Chernyshov had chosen Alpha immediately appeared among analysts. But if this was true, he had a strong opponent. Just the week before, the Federal Service for Financial Recovery had lodged an appeal against the decision to introduce outside management at NOSTA.
But then Alpha left the game. Its head, Natalya Rayevskaya, did not support the fight for the enterprise, apparently wanting to avoid a large-scale conflict between Avtobank and Alpha-Bank. Mr. Andreev now tried to sell 60 percent of NOSTA's shares (which were already worth nothing) to the Nafta-Moskva company. Why the large oil trader needed this package, no one knew. According to one version, Nafta-Moskva expected to sell this package to Alpha after fraying its nerves. According to another version, traders hoped to split the alliance between Steeltex and Alpha and to win the owner of Steeltex, Vladimir Savelyev, over to their side.
No Agreement with Koks
In the middle of 2001, a new name appeared in the lists of Russian metallurgical magnates-Igor Zyuzin. The owner of large Siberian open-pit coal mines got 20 percent of MECHEL's shares (Chelyabinsk city). Recognizing that the owner of MECHEL, the Swiss company Glencore, was not hiding its intention to sell its 40 percent of the shares of the enterprise to any investor, Mr. Zyuzin was able to become the full owner of the business by autumn.
Informally, people close to the former general director of Koks and to its actual owner, State Duma deputy Boris Zubitsky, confirmed that Mechel was being sold to Koks and Yuzhny Kuzbass for $180 million in installments over a year and a half, and until the completion of the settlement, Glencore would remain the exclusive trader of the enterprise.
For Koks, the expansion of metallurgical assets was extremely topical. The fact of the matter is that in the second half of 2000, companies affiliated with Boris Zubitsky and his son Evgeny got the controlling package of joint-stock company Tulachermet from the brothers Semyon and David Kisliny, partners of Trans World Commodities, on an equal footing with the Russian Credit subsidiary RKMetal. The holding, consisting of Tulachermet, MECHEL, Koks and Yuzhny Kuzbass, was about to become one of the most promising structures in the industry.
However, creation of the holding was brought to a standstill. On June 30, the next meeting of MECHEL shareholders took place. The places in the board of directors were occupied by Yuzhny Kuzbass, but representatives of Koks were not registered in the lists. The head of MECHEL, Alexei Ivanushkin, started to give contradictory comments: after four years of attempts to sell MECHEL, he suddenly declared to a strategic investor that such a deal would be unprofitable today, and a bit later, that Glencore was not a MECHEL shareholder at all. Rumours appeared that, on the one hand, Glencore believed that it had sold too cheaply and was rejecting the deal, and on the other hand, that Boris Zubitsky and Igor Zyuzin's relations were not friendly any more. There were also rumours that the head of UGMK, Iskander Makhmudov, had interfered in the situation.
Very likely, there were traces of UGMK in the situation; the fact is that just at that time, the structures close to Mr. Makhmudov, again started their work on reconstructing their share in another large enterprise of the industry, Magnitka. According to "Kommersant's" information, in April 2000, the TWG group sold 13.59 percent of Magnitka's shares to Igor Zyuzin's structures. There were rumors that control of this package would allow the enterprise's general director, Viktor Rashnikov, with the support of vice-premier Viktor Christenko, to defend his business against UGMK, which laid claim to30 percent of Magnitka's shares (however, this version was not confirmed by anyone). In this situation, Boris Zubitsky might have simply considered that too many events would take place around Igor Zyuzin and that it was worth staying out of them.
To finally find out whether Igor Zyuzin would become the new owner of MECHEL was not possible before the end of the year. But it is clear even now that there are plenty of candidates for the metallurgical Olympus in the country whose names are still unknown to the public.
Interros Spent Money for Nothing
In summer 2001, it became clear that to all intents and purposes, the Interros Group had abandoned their pretensions to control over NLMK. Vladimir Lisin, one of the best known managers in Russian metallurgy, could become the owner of NLMK at last.
The story about Vladimir Potanin's quarrel with Vladimir Lisin looks complicated and starts in 1994 (see the history of the industry). Let's briefly describe the part of it that is related to the conflict.
In spring 2000, the companies close to Vladimir Lisin and his partner Vladimir Skorochodov managed to consolidate about 63 percent of NLMK's shares. This was done using o a very complicated scheme: the financing of the share purchase from the Sputnik fund, which was managed by the Vladimir Potanin's partner Boris Jordan and the Cambridge Capital Management group, was accomplished in 1999 by means of discount buying of NLMK debts. The debts had been reregistered into Vneshekonombank Euro stock in 1997. It turned out that Vladimir Potanin's companies had to find about $ 400 million during 1999-2001 to pay for the controlling interest. At that particular moment, Vladimir Lisin proposed to the shareholders (the largest of them was the TWG group) to carry out an additional issue of shares.
Vladimir Lisin claims even now that the assets that he received for the additional issue were supposed to go towards financing a reconstruction program for NLMK, which cost more than $ 1 billion. However, it is fair to assume that Lisin, as manager of the enterprise, would pay off his debts for the purchase of the controlling interest in NLMK with part of the money earned. Thus, if Vladimir Lisin had not gotten the money, his rights to the controlling interest would not have been confirmed.
On the eve of this meeting, sensational news appeared: TWG had sold its block of NLMK shares to the Interros Group, and Norilsk Nickel had received 9 percent of the shares. According to rumors, Boris Jordan acted as adviser to Interros for the purchase of this 34 percent of the shares. He supposedly explained to Vladimir Potanin that it was possible to recover the 17 percent of NLMK shares that the Sputnik fund had already sold: as if Vladimir Lisin had underpaid Boris Jordan part of money under this deal. After that, the new NLMK shareholders blocked an additional issue of the enterprise shares.
A year passed before it was discovered that this measure would give nothing. According to unofficial information, during closed negotiations Vladimir Lisin posed the question of further cooperation in the following way: either you invest in the enterprise or sell the package to us five times cheaper than you bought it for ($170 million). You can also buy the controlling interest from us, but for $1 billion. None of the three offers satisfied the head of Interros, but it would have been extremely inefficient to keep tens of millions of dollars invested in a share holding that nobody wanted.
During this year, Interros repeatedly tried to shake Vladimir Lisin's positions. It disputed the sale of an NLMK branch plant -the Stinol refrigerator factory -to the Italian company Merloni in arbitration, nearly causing an international scandal. But the former TWG business manager was implacable. They tried to place the useless package somewhere. Norilsk Nickel tried to take out part of the profit through it, but their financial adviser, Deutsche Bank, opposed it. The expected deterioration of Vladimir Lisin's relations with western creditors did not happen, and Boris Jordan was unable to recover the 17 percent of the shares that had previously belonged to Sputnik. Thirty-four percent of the shares remained as a dead weight on Interros accounts.
It was only after a year that Vladimir Lisin got a call from Interros. One of the largest groups in the country, controlling no less than 6 percent of Russia's GDP, had agreed to invest in the company (not through an additional issue, but in the form of a $200 million credit), where it had suffered its greatest failure in the last three years.
Family Affairs
In the middle of 2001, the head of UGMK, Iskander Makhmudov, was implicated in what was probably the juiciest scandal in the history of Russian business: the alimony case of Severstal head Alexei Mordashov. Despite of its ridiculousness, the case threatened Severstal's owner with loss of the controlling share in the enterprise. Rumor accused Makhmudov of wanting to take half this interest away from him.
In August 2001, a statement signed by Lyudmila Mordasha, the former wife of Severstal's general director, appeared in the mass media. The spouse of the metallurgical magnate accused her former husband of paying almost no alimony for the support of their 15-year-old son. In addition, she said that Alexei Mordashov had compelled her to give up the share in gained in a legal marriage as joint property. Mrs. Mordashova included the nearly 80 percent of Severstal shares controlled by her ex-spouse in this property.
Although Severstal claimed that Mordashov had received shares in the property after the divorce, Lyudmila Mordashova decided to seize a third of Severstal's capital from her husband through the courts. As a result, 35 percent of Severstal's shares were arrested under the wife's claim, and the trial threatened to turn into rinsing of the metallurgical magnate's dirty underwear. This was the man who had been talked about as a potential vice-premier not long before.
Some sources attribute the authorship of the scandal to one of the high-ranking managers of Russian Aluminum, who himself had had similar problems with his wife in his time. But the rumours that Iskander Makhmudov had talked Lyudmila Mordashova into going to court were much louder. He could use the alimony case as some kind of deterrent to the structures of UGMK and Evrazholding in talks on making concessions on the "Severstal controlling interest.
By the way, interest of UGMK, Evrazholding, and structures close to them is not so hypothetical. Let us recollect how Severstal was worried when the MDM Group bought Kovdorsky GOK, the main supplier of raw materials for the Cherepovets enterprise. In addition, Alexei Mordashov remains one of the few competitors of the invisible UGMK- Evrazoholding-MDM Group-Russian Aluminum consortium in metallurgy, and a dangerous competitor he is. Thus, Severstal has prevented Rusal from consolidating its grip on GAZ, having bought its motor supplier, the Zavolszhk Car Factory. Having created Alliance-1420 together with the Incorporated Metallurgical Company, Severstal is threatening to leave the Nizhny Tagil Metallurgical Enterprise without state support in the project for large-diameter pipe production for Gazprom.
However, one case is a business war and the other is a family affair. The fact that organization of the first really dirty scandal in Russian metallurgy is attributed to Iskander Makhmudov, allows us to predict that we have still not heard the last word in the war for property in Russian metallurgy.
by
Afanasy Sborov
All the Article in Russian as of Sep. 18, 2001
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