Andrey Melnichenko talks about the future of the coal market. Interview on Russia 24 channel.
Irina Matiyushenko (hostess): Andrey, welcome to our studio. Let's begin with a global question: how did the COVID-19 pandemic and the subsequent drop in global demand affect your business, first of all, SUEK and EuroChem?
Andrey Melnichenko: Last year was, of course, difficult. The most important thing is that we did not let the suspension of production operations. Our management did a great job; it was not easy, but, by and large, we avoided interruptions in our activities. Our company coped with this well. From an economic point of view, we saw a sharp drop in demand, especially at the initial stage, last spring and early summer, when uncertainty was very high. We overcame it.
Irina Matiyushenko (hostess): Concerning your coal business, the Ministry of Energy predicts that all coal production in Russia may reach its pre-pandemic level already this year. Do you agree with this estimation?
Andrey Melnichenko: We are increasing our own production figures significantly year-on-year. As for our colleagues who mine coal in the key mining regions in Russia, Kuzbass and Yakutia, they also demonstrate robust growth, which means that the demand for coal has returned to the markets.
Irina Matiyushenko (hostess): What is the reason why this demand has returned to its pre-pandemic levels?
Andrey Melnichenko: Probably, the pandemic caused a drop in demand because of production cuts, shutdown of some manufacturing facilities, etc. Now the world is slowly returning back to normal, as we all can see. Moreover, the deferred demand for various products is significant, and any demand needs energy sources, hence the demand for our products.
Irina Matiyushenko (hostess): That being said, we know about the huge demand from China, and China has banned coal supplies from Australia. Are you ramping up deliveries to the People's Republic of China, and is the capacity of the Baikal-Amur Mainline and Trans-Siberian Railways enough for Russian coal miners? What are you doing in this area?
Andrey Melnichenko: Indeed, Russian railway infrastructure restrictions are perhaps the main obstacles that limit our access to the Pacific market, the most attractive one. Both the government and Russian Railways take this issue very seriously. Extensive work is underway, a large construction project to expand Baikal–Amur Mainline, and we hope that all targets will be met and the goals set by the President will be achieved by 2024-2025. For our part, we are engaged in work in two areas. On the one hand, we continue the programme of investment in our ports, we are doing plenty of work at the Vanino Bulk Terminal in the Muchka Bay to expand its transshipment capacity from 20 to 40 Mt. I hope that our colleagues from Russian Railways will not let us down and will ensure the transportation of our products to the new facilities that we are building now.
On the other hand, we continue to invest in coal mining in Kuzbass, Khakassia and other regions, and our company will be able to provide the entire infrastructure system with commodities.
Irina Matiyushenko (hostess): There are more and more statements about the transition to green energy. We hear such words as decarbonisation, carbon footprint reduction, etc. This is a global and Russian trend now. How does all this affect the demand for coal and SUEK's business?
Andrey Melnichenko: This is an objective trend. Regulations are developing and changing all the time, and more and more countries are beginning to take greenhouse gas emissions seriously. That is, on the one hand, demand is falling and will continue to fall, but on the other hand, there is a strong influence of regulatory changes on supply. It becomes more difficult to access financial resources, many companies refuse to invest in the production of, say, coal in some countries. Interestingly, the process will never be uniform, as supply and demand will fall differently in different regions. This will give rise to some new commodity flows in the markets. How exactly this will happen and what will fall faster, supply or demand, is not obvious. In this non-obvious context, what do we need to do? We need to have the best, cheapest ways to enter those markets where demand is likely to remain strong for long, e.g. the Pacific market, which is what we are doing. At the corporate level, we strive to produce the highest quality coal in the cheapest way and transport it to the most promising markets, which we hope to maintain for a long time and, perhaps, stay mong the leaders.
Irina Matiyushenko (hostess): Regarding your other business, EuroChem, the Ministry of Industry and Trade recently approved an application for signing a special investment contract to build a plant in Kingisepp. Can you tell us on what terms this contract will be signed?
Andrey Melnichenko: First, about the nature of business. We are developing a new chemical cluster in the city of Kingisepp. Several years ago, with some support from the federal and regional governments, we began a new project for the production of ammonia (1,1 Mt, $1.2bn invested). A new, state-of-the-art and nicely shaped plant is already operational, many thanks to the Leningrad region and federal governments. Now we are in the process of building other similar ammonia and urea units, this is another $1.6bn to be invested. The contract is a standard special investment contract, with support in terms of both federal and regional tax payments during the payback period.
Irina Matiyushenko (hostess): To what extent is business interested in this kind of cooperation with Russian authorities, a special investment contract? Are these favourable business conditions?
Andrey Melnichenko: They facilitate making investment decisions, as we live in a very competitive environment and compete in the global market. In this way, we get an opportunity to be more competitive than our colleagues, which actually lead to these investments. It makes no difference where to produce the products that we produce: in the USA, Asia or Arab countries. The resource that we use for production, i.e. gas, is available in many places, and the Russian Federation is not the cheapest of them. All in all, including the comfortable conditions that our state provides to investors, we receive a serious competitive advantage and try to exploit it.
Irina Matiyushenko (hostess): If the European Union eventually imposes sanctions on Belarusian fertiliser exports, will this affect your business? Have you calculated such risks?
Andrey Melnichenko: We need to see what is going to happen to Belarusian products. Of course, this will cause a reorientation of commodity flows; Belarusian products will leave some markets, which means they will come to other markets.
Irina Matiyushenko (hostess): Probably to Russia?
Andrey Melnichenko: We will see. Perhaps, there will be more competition in the Russian market. However, since Russia is an exporter, nothing should fundamentally change, maybe just some redistribution of flows, i.e. more Russian products will be exported, more Belarusian goods will come to us, and everything will be balanced.