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. Last Updated: 07/27/2016

Indian Firm Rescues Kazakh Steel Plant

TEMIRTAU, Kazakhstan -- Hours before dawn, the city of Temirtau has the feel of a ghost ship, adrift on the bleak snowbound expanse of Kazakhstan's northern steppe.

Yet turn away from the silent, weathered apartment blocks lining the main street and there are signs of life beating in the city's true heart -- a pink glow from the great blast furnaces of the old Karaganda Metal Works lights up the night sky.

The fire very nearly went out in 1995, and with it the hopes of survival for this city of nearly 200,000, lying half-way between Moscow and Beijing. The mill was falling into disrepair and unpaid miners at the Karaganda pits were threatening to cut off coal supplies -- a death sentence for any blast furnace.

But now, two years on, the giant steel mill that accounted for more than 10 percent of Kazakh gross domestic product in Soviet times is building up output and developing new markets under the ownership of the Indian expatriate steel group Ispat.

"The first year was used only [for] repairs. The plant was in real shambles. There had been no maintenance for five years," general director Malay Mukherjee said.

But last year, with some $150 million invested so far in the 6 million-ton annual capacity plant, output rose 23 percent to 3.83 million tons. Sales rose 31 percent to 2.93 million tons, and sales of the key hot rolled coils rose 65 percent.

Renamed Ispat Karmet, the plant now accounts for about 7 percent of gross domestic product and is Kazakhstan's biggest private employer.

All 1997 sales were paid in cash by buyers from 65 countries, notably in China, southeast Asia and the Middle East, compared to 1994, when 79 percent went to the former Soviet republics under often unprofitable barter arrangements.

In a dramatic show of Kazakh readiness to hand over control of key industries in return for investment, Ispat, part of London-based Lakshmi Mittal's LNM Group, paid $250 million for Karmet in November 1995.

Kazakh President Nursultan Nazarbayev rose from the shop floor at Karmet to become Kazakhstan's Communist Party boss. He has vowed to give foreign management a free rein in exchange for investment in the country's under-exploited natural resources.

A dinosaur of communist planning, no one builds vast plants like Karmet these days. If they did, it would cost around $6 billion, Mukherjee says.

Technical auditor Vijay Sindhia is glowing about the Soviet engineering in the four blast furnaces, one of which is awaiting repair. "This compares to anything in the world," he said.

But Ispat, which ranks itself 10th among world steel firms, did not get a bargain. Some parts of the mill are little changed since the first lines were set up in World War II.

Ispat plans to invest $830 million in Karmet by 2001, helped by $450 million in new credits from the European Bank for Reconstruction and Development and the International Finance Corporation.

Despite the Kazakh government's willingness to seek foreign investment, Mukherjee admits to some bureaucratic interference and frustration at a lack of long-term state strategy for exports and progress in talks with Russia on cheaper rail links.

Kazakhstan has had several spats with foreign investors. But Mukherjee, with a portrait of Nazarbayev above his desk, said: "In two years, we've definitely seen an improvement in climate."