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. Last Updated: 07/27/2016

Putin Urges Consolidation in Petrochemicals Industry

The government will encourage consolidation in the petrochemicals industry because it is too fragmented to become globally competitive, Prime Minister Vladimir Putin said late Tuesday.

"Consolidation of this industry stands high on the agenda. The state should help this process and will definitely do it," Putin told a meeting of government officials and oil industry executives in Nizhnekamsk, Tatarstan. He added that consolidation in the petrochemical industry was a global trend, but Russia had not participated thus far.

"We're selling raw materials and buying finished products, most likely made from our raw materials," Putin said, stressing that Russia, which extracts 13 percent of the world's oil, manufactures only 2 percent of its plastic.

The meeting, held at the site where Tatneft is building an oil processing and petrochemical complex, is among several industry forums being held to discuss the development of nonextractive sectors of economy.

Putin said access to oil-product pipelines was a crucial problem for the sector and he warned that pipeline owners should not abuse their monopoly. "Access to product pipelines should not be discriminatory," he said.

Energy Minister Sergei Shmatko said the pipeline network needed to be developed since most oil and gas is extracted in Siberia, while most of the country's petrochemicals plants are in the European part of Russia.

"For us, developing a network of products pipelines is a question of competitiveness," Shmatko said. He said the structure of the sector has changed little over the past 20 years, though some new projects were being planned.

Shmatko said LUKoil decided to build a petrochemical plant near the Caspian Sea while Gazprom, Rosneft and petrochemicals firm Sibur were looking into building plants in the Baltic countries. New petrochemical plants should be built closer to large industrial centers and export markets, he said.

Putin also said he settled a long-running pricing conflict between Sibur, controlled by Gazprombank, and Kazanorgsintez, or KOS.

"During the visits to these plants today, we were able, I believe, to solve one of the toughest problems in the sector. I'm ordering [Deputy Prime Minister] Igor Sechin and the anti-monopoly service to finalize this and settle the agreement. We're talking about prices, periods and volumes of raw materials delivered," to petrochemicals plants, he said, Interfax reported.

Government spokesman Dmitry Peskov later told Interfax that Putin was referring to the conflict between Sibur and KOS, which has been on the verge of bankruptcy for several years. The petrochemicals company had a net loss of 2.8 billion rubles ($98.7 million) last year, according to international financial reporting standards, and currently has debt of nearly 30 billion rubles, Interfax reported.

KOS, the country's largest maker of polyethylene, received a state guarantee for 10 billion rubles, while TAIF, a Kazan-based holding company that controls KOS, got a guarantee for 7.5 billion rubles, the government said Oct. 30.

 (Reuters, MT)