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. Last Updated: 07/27/2016

Residential Pipe Plant Opens After 12 Years

Gazprom chairman Rem Vyakhirev cut the ribbon at the opening ceremony of a small- and medium-diameter pipe plant in central Russia's Kostroma region, whose prospective sales may fetch some $300 million a year if the investment project is carried out in full.

It took Gazprom 12 years to complete the construction, approved by the last Soviet government in 1989.

"It was the first time the government resolved to cater to the needs of the households in remote rural areas," said Garold Gershanovich, head of the Moscow office of Volgorechensk Trading House, an exclusive dealer for the new Volgorechensk Pipe Works.

The Volgorechensk plant was initially expected to be finished in 1996, but the government, short of funds after the collapse of the Soviet Union, put the project on hold and later handed it to Gazprom, which teamed up with national power monopoly Unified Energy Systems to build the plant.

In the initial phase, UES contributed the site and construction workers, taking a 10 percent stake in the project, while Gazprom took care of all cash expenses.

Later, UES scaled down its participation, agreeing to lower its share to 3 percent and, subsequently, to 0.2 percent.

Gazprom plowed in 95 million Deutsche marks ($44.6 million) to buy machinery from German industrial giant Krupp and ended up with a stake of 98.2 percent in the pipe maker, owned through the Kostromatrubinvest investment vehicle.

It can be estimated, therefore, that the total cost of the new plant, including purchase of equipment, development of infrastructure and construction of office and production space, amounts to less than $100 million, according to sources at the plant.

In the future, Gazprom aims to install two more production lines in Volgorechensk in addition to the one opened Friday, bringing the total capacity to about 1 million tons a year from the current 300,000 tons.

Given that one ton of pipes rolled by the company fetches about 8,500 rubles ($300), the plant could earn some $90 million a year, while the addition of the new production lines could increase sales to $300 million.

However, no increase in output is in Gazprom's cards in the near term due to low solvent demand.

Gazprom itself placed an order for 20,000 tons for this year and signed agreements with 38 regional governors to promote sales.

The Volgorechensk plant has 12 competitors in Russia, including Vyksa, Volzhsky, Taganrog, St. Petersburg-based Trubostal pipe plants and two Ukrainian pipe makers. The price tag for its products bears a premium of some 5 percent to that of its competitors, but plant officials said their pipes are of higher quality.

Officials at the Volzhsky Pipe Works, which produces pipes of the same diameter, said Friday the market grew about 100 percent in 2000, and so had room for newcomers.