Groups Gobble Up Pipe Plants

Powerful financial groups are taking over the nations pipe-building plants.

On Tuesday, the Petrokommerz bank and the financial group of Avtobank and Stilteks jointly announced the acquisition of a 36 percent stake in the Seversk pipe plant for $20.5 million and have expressed their intention to increase their interest to a controlling stake of 51 percent plus one share.

The plant, located near Yekaterinburg in the Ural Mountains, makes pipes that are used in extracting oil, and Petrokommerz bank is 75 percent owned by LUKoil, the nations No. 1 oil firm, which has huge fields in northern Russias Timan-Pechora region and the Caspian that it wants to bring into production soon.

Neither LUKoil nor Petrokommerz bank would comment on the purchase.

In a separate development on Wednesday, trading company Alfa-Eko, which is part of the Alfa Group holding that includes Tyumen Oil Co., announced in a statement that it had gained control of a blocking stake in Tagmet, the Taganrog Pipe Plant located on the Azov Sea.

A blocking stake is 25 percent plus one share and allows a shareholder to veto board decisions it doesnt like.

Earlier this year, MDM-Bank purchased a controlling stake in the Volzhsk pipe plant in the Volga region.

Part of the reason for the interest in the pipe plants is that they can be used to transport oil, oil products and natural gas, which are the nations main source of export income. Windfall profits from high world oil prices in the last year have filled oil firms coffers with cash they are now using to expand production.

In addition, Caspian Sea oil production is coming on stream and there are several plans to export it via pipelines. The Volzhsk plant is producing pipes for the Caspian Pipeline Consortium, which is building a 1,580 kilometer pipeline from Tengiz, Kazakhstan, to the Russian Black Sea port of Novorossiisk.

Tagmet and Seversk are important players in the nations pipe industry. According to NIKoil brokerage, the Seversk plant is No. 4 by output and controls 8 percent of the market. Tagmet is No. 5. Both companies have seen their productivity and profits soar this year.

Analysts have varying explanations for the increased interest in purchasing pipe plants.

Svetlana Smirnova, metals analyst for Renaissance Capital investment bank, said there is "a general process of consolidation" in the nations ferrous metals industry, and pipe-building plants represent an "acquisition target for powerful groups." Pipe-building factories are generally easier to acquire than steel plants, she said.

Steel plants primarily serve the export market and are more attractive to investors, and have long since been acquired by powerful interests, Smirnova said. Pipe factories, on the other hand, being primarily oriented toward the domestic market, had not had major shareholders before now and were hence easy targets for financial groups, she said.

However, it is not clear if the acquisition of the stake in the Seversk plant is part of Petrokommerzs strategic plans or if it is actually LUKoil that wants control over the plant.

Smirnova said the Seversk purchase could represent an attempt by Petrokommerz and the Avtobank-Stilteks group to create a vertically integrated company. This seems logical considering that the Avtobank-Stilteks group owns the metallurgical complex NOSTA a metals giant in Novotroitsk in the Orenburg region, 1,200 kilometers southeast of Moscow and coal assets in the Kuzbass region of western Siberia.

Mikhail Armyakov, metals analyst for NIKoil, said that LUKoil had no interest in controlling the Seversk plant.

However, Smirnova said that by holding a minority share in the plant, LUKoil will be able to influence the prices of pipes.

The Segodnya newspaper reported that as a result of Pertrokommerzs purchase of the stake in the Seversk pipe plant, the plant had become part of LUKoils financial-industrial group. Moreover, the newspaper said that control over the plant will allow LUKoil to increase its independence from state-owned pipeline monopoly Transneft, which stipulates quotas for the pumping of oil through its system.