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. Last Updated: 07/27/2016

Putin Receptive as Steel Firms Appeal

APPutin signing a diagram of MMK’s Steel Mill-5,000 at its opening Friday.

Prime Minister Vladimir Putin went to Magnitogorsk on Friday with an open ear, promising chiefs of the country’s top steelmakers that the government would defend them abroad and might pass a law requiring natural monopolies and state corporations to buy their products.

The steelmakers used the meeting, hosted this year by Magnitogorsk Iron & Steel Works, or MMK, to ask for a quicker refund of value-added tax payments, more state guarantees for their loans and higher import duties for their foreign competitors. Putin said he supported their suggestions.

The friendly atmosphere was also a marked change from the meeting held in Nizhny Novgorod exactly one year earlier, when Putin threatened to send a doctor to Mechel owner Igor Zyuzin — who cited illness to skip the talks — amid an anti-monopoly service investigation into his coal and steel firm’s export pricing.

Zyuzin, who has since made peace with Putin and the Federal Anti-Monopoly Service, was present but made no public comments.

“The most serious attention should be paid to the protection of Russian producers on foreign markets,” Putin told 14 top executives of the major steel companies and their consumers, including pipe maker TMK, Rosneft, Transneft and Russian Railways.

“Our metals production is discriminated against in many countries,” Putin said. “We have to get our state bodies working to negate and prevent such anti-market constraints,” he said, apparently addressing Industry and Trade Minister Viktor Khristenko and Deputy Prime Minister Igor Sechin, who sat to the prime minister’s left and right.

Khristenko told the meeting that he expected new restrictive measures and anti-dumping investigations against Russian metals producers abroad, in addition to the 27 restrictions they now face in 11 countries.

“In part, it could be Iran and China,” he said.

Putin also stressed the need to support demand, which he said had fallen by 40 percent to 45 percent domestically and by 15 percent to 20 percent abroad. He did not specify over what period.

“The key problem for the metals industry today is the lack of demand on both the domestic and foreign markets,” he said.

Steelmakers may get preferential orders from natural monopolies and state corporations, Putin said. “A special law on that could be adopted,” he said.

The head of the Federal Anti-Monopoly Service, Igor Artemyev, said foreign carmakers producing in Russia should be pressured to buy from local steelmakers.

“The moment may have come when foreign automakers working in Russia could increase the volume of purchases from our steelmakers,” Artemyev told the meeting, Interfax reported. “Some political pressure on them could bring success to our carmakers.”

Deputy Economic Development Minister Andrei Klepach, the government’s top forecaster, told the meeting that last year’s high level of production would not be reached until after 2012, even under the ministry’s conservative forecast.

To help make ends meet in the meantime, steelmakers asked for quicker tax returns and protective measures.

MMK chairman Viktor Rashnikov requested a quicker refund of VAT payments on exports. Since Jan. 1, VAT has been refunded quarterly, after which an in-house tax audit is done. “In practice, it takes us as long as six months to get the return,” Rashnikov said.

Putin promised that the process would be sped up. “We will certainly work out a system where the criteria would be transparent and could be efficiently used” to return VAT, Putin said. “Your suggestions will be taken into consideration.”

The Finance Ministry has prepared a bill that would speed up the refunds to within 20 days from the current 90, Deputy Minister Alexander Novak told the meeting. The return period will be reduced for exporters that can get a bank guarantee on the sum of return, while the largest exporters would not be required to present the guarantee, Novak said.

Others sought more protection of the Russian steel market from foreign competition. Severstal CEO Alexei Mordashov asked the government to aid domestic steelmakers, as China and India protect their markets. Russia should keep import duties on some pipes and steel and favor domestic producers, Mordashov said.

TMK chairman Dmitry Pumpyansky asked for a one-year extension of import duties on some kinds of rolled steel and pipes. From Feb. 1, duties on 11 types of flat-rolled and plain steel and 46 varieties of pipe were raised by 10 percent or 15 percent for nine months.

Putin, again, largely concurred. “We shouldn’t feel shy about using the instruments of domestic market protection if we’re facing outright dumping,” he said.

Novolipetsk Steel chairman Vladimir Lisin said it was a necessity to cancel the duties on machinery not produced in Russia. “Why should we pay to import things just because it’s not made in Russia?” Lisin said, adding that the property tax on such machinery should also be canceled.

Putin said he disagreed with Lisin, however. “As for the zero duties on the machinery not produced in Russia, this is a present,” he said. “This is your property, not state property, and that is why it is a gift, and you have to use it efficiently.”

The prime minister also said state guarantees for loans would be extended, apparently addressing three state bankers — VTB first deputy chief Mikhail Kuzovlyov, Vneshekonombank deputy chief Anatoly Ballo and Sberbank vice president Kirill Levin — who were present.

Klepach, the deputy economic minister, also proposed that Vneshekonombank, or VEB, be given additional resources to provide loans for seven to 10 years at “acceptable” rates to fund steelmakers’ investments — or start subsidizing interest rates on such loans.

“Taking into account the state of the production capacities in the Russian metals industry, VEB is interested in financing steelmakers’ investment projects to implement new technologies and produce metal with high added value,” spokeswoman Yekaterina Karasina said Sunday.

A VTB spokeswoman declined to comment on the meeting. A Sberbank spokeswoman was unavailable for comment.

VTB said in a statement Friday, however, that it began reducing its interest rates for loans to “strategically important enterprises” this month, on average by 2 percent to 3 percent.

Khristenko proposed that steel and pipe makers be given priority for Gazprom’s orders at home and abroad; that Russian Railways, or RZD, charge metals producers less to transport ferrous scrap; and that the country’s ports be modernized so they could service the deep-sea vessels required to export metal.

Putin backed the idea of modernizing ports and said the government would consider possible cuts in the railroad tariffs. The government will earmark 50 billion rubles ($1.6 billion) of budget funds to help RZD next year, he said.

But the proposed changes in transportation tariffs didn’t sit well with RZD chief Vladimir Yakunin.

“If we accepted the suggestion voiced here, Russian Railways would lose 4.5 billion rubles [$145 million] under this year’s prices,” Yakunin said. “With that, the metals industry would save 0.8 percent” in costs.

Spokespeople for Evraz, Mechel, Novolipetsk Steel, Severstal and TMK declined to comment on the meeting.

Later on Friday, Putin met Chelyabinsk Governor Pyotr Sumin and told him that he liked the metal producers’ attitudes, saying they “don’t snivel.” Magnitogorsk is located in the Chelyabinsk region, where many Russian steelmakers are based.

Putin also opened MMK’s massive plate-steel plant, known as Steel Mill-5,000, the company said in an e-mailed statement. The mill will make plates for the pipe industry, ship builders and for bridges.

Putin pressed a big red button to launch the mill and then signed the screen with a diagram of the machine: “Good luck, V. Putin.”