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. Last Updated: 07/27/2016

Severstal Crows About Steel Town

For MTA steel chicken greeting visitors on Ploshchad Metallurgov in Cherepovets.
CHEREPOVETS, Volodga Region -- Every steel town in Russia has its Ploshchad Metallurgov, and Cherepovets is no exception. Few boast a steel chicken on the square.

Welcoming visitors to Cherepovets' vast steel mills, the 2-meter-high chicken -- a local landmark -- has a head and neck made of brightly painted pink and orange steel tubes, with a crude beak and eyes and a trimmed hedge for its body.

The chicken is just one of 10 steel animal figures that have sprung up in recent years around town as part of efforts to brighten up its green spaces. Others include a dragon, a dolphin and a peacock.

Unlike the many Soviet-era monuments to metallurgical prowess here, the animals have caused a bit of a flap.

"They have drawn a lot of debate about whether they should stay," Tatyana Posakhova, a guide at the Cherepovets heritage museum, told a busload of foreign journalists being shown around Monday.

The trip is part of a PR effort by local steelmaker Severstal and its owner, Alexei Mordashov, to woo the shareholders of European steel giant Arcelor, who are due to vote June 30 on whether to back Mordashov's white knight offer or to support a rival bid by Mittal Steel.

A Severstal-Arcelor merger would create the world's biggest steel company -- and make Cherepovets-born Mordashov, 40, one of the most powerful players in world steel.

A makeover for the steel chicken and his friends, it seems, is just one small indication of the changes Mordashov has wrought here since he took control of Severstal in 1996.

In many ways the town has remained a model Soviet settlement, even as its vast factories have been transformed into a modern, vertically integrated corporation.

In a typical Soviet-era planning arrangement, Cherepovets' main artery, Sovietskaya Ulitsa, runs perpendicular to a Prospekt Pobedy and a Leninsky Prospekt. Dilapidated five-story apartment blocks stand in awkward, geometric groupings, while the central avenues have rows of two-story houses built by German prisoners of war.

The other half of Cherepovets is Mordashov's domain. Severstal's businesses include the country's second-largest steel mill and a car factory, Severstal-Avto, among a dozen enterprises in the city and throughout northwest Russia.

The group directly or indirectly employs more than one-third of the city's 300,000 people, while almost single-handedly feeding the Cherepovets municipal budget and bankrolling the local hockey team.

"I can't say that he's like the Godfather or anything, but people respect him for shouldering such a responsibility. It takes some guts," said Vladimir, a Severstal office worker who declined to give his last name.

When Mordashov announced his merger plans last month, the initial mood in Cherepovets was one of shock, workers said. The main anxieties were if jobs would be lost or salaries cut.

Mordashov has since been in town and assured them that both are safe, Vladimir said.

"And if he promises something, he does it," Vladimir said. "The thing is getting him to make a promise."


Alexei Boitsov / Bloomberg

A worker at a mill in Cherepovets, where Severstal has brought in new technology and Western-trained consultants.

During a tightly scheduled media trip, reporters were taken on a whistle-stop tour of the town and shown around three large workshops, then treated to lunch with the mayor, complete with a speech and toasts with red wine.

Mordashov took control of Severstal from his mentor, general director Yury Lipukhin, eight years after he joined the company as an economics graduate and rose through the ranks to become finance director. After the plant's privatization in 1993, Mordashov set up a metals trading firm, Severstal-Invest, which used various schemes, including transfer pricing, to accumulate quick cash.

Collecting a majority stake did not require vast capital, as the firm's 22 million shares were worth just $3 each at the time, Mordashov said in a conference call last month. "What I did was perfectly legal. I was just the last camel in the caravan when it turned around," Mordashov said, referring to the way that well-connected insiders bought the country's plum industrial assets cheaply.

Whatever the ethics, Lipukhin's departure sparks little talk in Cherepovets now. Instead, workers note the improvements over the last decade and leave office politics to those in the big offices.

The pragmatic Mordashov brought in new technology and Western-trained consultants to turn the business around, and picked people on merit, not hometown sentiment, said Roman Deniskin, head of the Severstal-Resource mining unit. At one point in the late 1990s, Mordashov tempted onboard most of the industrial team from leading management consultancy McKenzie.

On the shop floor, change meant stricter safety rules and automated production. Average monthly salaries have risen to 15,000 rubles ($550), the company says.

"A lot has changed with the new equipment," says Dima, 32, a foreman in the hot rolling shop, which stretches a full kilometer. Much of the view is obscured as steam rises from giant nutcracker-like machines that press long strips of red-hot metal and douse them with water.

In the shop's monitoring room, two people operate the computers, replacing the manual work originally done by a whole team. "Of course, it's easier now," Dima said, comparing conditions to when he first came to work here, 12 years ago. "But then, quality demands have gone up too."

The average age in the hot rolling shop is 24, Dima said. Many of the workers arrive from CIS counties, filling gaps in an area that, like the rest of the country, suffers from a demographic crisis.

Despite the migration flows, the town's ethnic composition remains mainly Russian, and 98 percent of residents consider themselves to be Russian Orthodox, Posakhova said. At the other end of town, inside Cherepovets' 17th-century Voskresensky Cathedral, about 40 worshipers of various ages attended a holiday service.

In the cathedral grounds, a cast-iron statue of the monks Afanasy and Feodosy, the city's founders, tells the legend of how the area was first settled. In the tale, a ray of light illuminated the site of the future town to Feodosy, then a merchant, as he was sailing during a thunderstorm on the nearby Sheksna River.

Steel money has breathed some life into the town, but there's a way to go yet. Locals still complain of potholed roads, while the main drag has yet to succumb to the big retail chains. The one exception is mobile retailer Yevroset, whose bright yellow signs shamelessly trump other shops, out-glaring even the flickering lights of a nearby casino.

One retailer you might not find on other main streets is furniture maker Severstal-Mebel, one of a host of spin-off factories nationwide born out of the need to produce household goods to combat shortages in the 1980s.


MT

Alexander Artyushichkin

Cherepovets' newest plant, Severgal -- a joint venture with Arcelor -- is a modern, pristine facility that this spring started producing galvanized steel for cars and steel for household appliances.

Severgal's production line uses the latest European equipment, "incorporating all the gains Arcelor has made in this sphere," Alexander Artyushichkin, executive director of Severgal, said during a tour of his plant.

The plant aims to produce 300,000 tons of auto sheet steel per year, covering three-quarters of the Russian market. Contracts have been signed with AvtoVAZ and France's Renault, while Ford and Kamaz are also interested, Artyushichkin said.

While Severstal's ability to produce low-cost steel is not in doubt, many of Arcelor's shareholders have questioned whether Mordashov's is the best offer on the table.

So far, the omens for Mordashov's white knight deal look good, if an unintended pun by Posakhova, the museum guide, was anything to go by.

"You should visit Cherepovets in a couple of weeks," Posakhova said, waving good-bye to the reporters. "This is the time of white nights here."