The Safins' pipe business is given away in exchange for lobbying

Nikolay Yegorov took a controlling stake in the Zagorsky Pipe Plant as payment for assistance in securing financing from Sberbank.
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The print media "Metal Supply and Sales" published an interview with the Director General of JSC "Zagorsk Pipe Plant" Denis Safin, timed to the first anniversary of the start of the new enterprise specializing in the production of large diameter pipes (LDP) and insulation. Suddenly, a loud announcement was made that the company received an influential patron in the person of a new shareholder, Nikolay Yegorov (a classmate of President Putin), who personally agreed with German Gref to provide financial support to ZPP.

But the results of the company's activities in 2016 were not impressive: the increase in the credit load from 4.1 to 5.1 billion rubles, claims against the Isolation Pipe Plant (IPP) from the same holding with the requirements for bankruptcy and a dozen contracts on average 3-5 thousand tons of pipes each. But most importantly, ZPP has no prospects. And it's not just that the demand for LDP has been falling for the second year in a row. Mr. Yegorov is trying to enter the highly competitive pipe market, where the rules of the game within the framework of cooperation with Gazprom are implicitly established by the Rotenberg brothers.
Clever patrons

The story of how a budding family business was distributed to new shareholders in exchange for patronage began in 2014, when the owner of the Isolation Pipe Plant Safin Galyalkhak together with his son Denis launched a project to build a new production of large diameter pipes. The Safin family had ambitious plans: to break into the LDP market and take their niche, providing the company with large orders. The Moscow Region Government also expected that the new plant would enter full capacity, hoping to replenish the regional budget and create new jobs.

To launch a large enterprise, it is not enough to enlist the support of the regional administration. It's necessary to ensure the financing of the project, find the outlets in advance, and agree on the volumes of supplies for the pool of key customers, and settle legal issues. At the first stage, the Safins thought that everything was going well - they found "the right people" who promised to help in resolving pressing issues.

In particular, the owners of the IPP and ZPP came to the governor of the Moscow region Andrey Vorobyov through the compatriot of Safin, a senior former State Duma deputy Rafael Gimalov, who received 10% of ZPP shares for his services. When the Zagorsky Pipe Plant was built in a record 16 months, the Governor of the Moscow Region personally came to the solemn opening ceremony in April 2016 in the Sergiev Posad District, which was to witness the support of the regional authorities.

The Safins combined IPP and ZPP into a single complex for the production of large diameter pipes with a design capacity of up to 500,000 tons per year. The main rate was intended for oil and gas companies, although ZPP is actively supplying pipes for the needs of the housing and utilities sector. The main suppliers of a broad sheet for ZPP are foreign companies: Alchevsk Iron and Steel Works (Lugansk region, the territory of the Lugansk Republic) and South Korean POSCO, cooperation with which carries clear risks. In the first case - for political reasons, in the second - for economic reasons, since the instability of the ruble under the condition of a currency contract between partners can greatly influence the cost of the final products of ZPP.

Of the 10 billion rubles invested in the construction of the plant, 5.1 billion was provided by Sberbank, and 4.9 billion were invested by the Safins from their own funds earned on rebuilding the pipes that were in use. The main role in obtaining loans from Sberbank was played by Nikolay Yegorov, who is well acquainted with the head of the bank Herman Gref and enjoys his favor. Today, Vladimir Putin's former classmate at the Faculty of Law of the Leningrad State University Yegorov heads the St. Petersburg office of the law firm "Yegorov, Puginsky, Afanasiev and Partners." In business circles, he is primarily known not as a head of a law firm, a professor or a doctor of law, but as a person with broad connections, right up to the top people of the Russian Federation, which allows him to help Sberbank clients who find themselves in difficult situations for an appropriate fee. Mr. Yegorov estimated his lobbying efforts in the case of JSC Zagorsky Pipe Plant at 25% + 1 share. Another example of the exchange of such assistance to participate in the share capital is Antipinsky Oil Refinery Dmitry Mazurov: according to the USRLE, since 2008, the lawyer owned 20% of the parent company of the refinery OOO Gaztransservis, and since January 2016 a similar package in the refinery at the Mine Project Corporation (Seychelles )

Earned on old pipes

The business of processing and rebuilding used pipes is very profitable, since a used pipe costs 2-3 times cheaper than new products. And this difference in price is put into the pocket of successful traders who supply the "recovered" pipe to the customer under the guise of a new one, often under forged certificates. In fact, the term "pipe restoration" is cunning, since a used pipe can not be given the qualities that new pipes have, whatever efforts to restore it. In fact, "restorers" simply give the used pipe a commercial outlook, since its condition can hardly be noticed when placed in the ground.

The scale of this "gray" business can be illustrated by the example of a scandal around the construction of an oil depot and a linear oil pipeline in Ust-Luga, in which the Isolation Pipe Plant was implicated. As the investigation established, the managers of the company "Industrial Technologies", who took the contract for the supply of new pipes for the tank farm and oil pipeline, in fact bought up worn out pipes throughout Russia, which were then "restored" at the IPP to supply to the customer under the guise of new ones. According to the investigation, more than 330 million rubles were stolen from the customer companies, and the total damage to the enterprises as a result of deliveries to Ust-Luga objects of used pipes instead of new ones exceeded 4.5 billion rubles. As a result, the managers of LLC "Industrial Technologies" received real terms and fines. The investigation in this case is being conducted by the Investigation Department of the FSB Directorate for St. Petersburg and the Leningrad Region and to this day, the search for the involved persons continues.

Unhappy year

In his interview, Denis Safin, General Director of ZPP, boasts of loud names of large consumers of large-diameter pipes: Rosneft, NOVATEK, LUKOIL, SGM-Most, etc. But he does not mention the modest volumes of deliveries to these companies in 2016, which basically did not exceed 5 thousand tons of LDP. The absence of large contracts and, accordingly, the sales market is the main problem of the Safin's pipe plants. It is exacerbated by the decline in demand for LDP for the near future and the lack of attestation of ZPP products for use in new Gazprom pipelines. In addition, procurement for repairs accounts for about 30% in the structure of pipe purchases, and Gazprom has already conducted tenders, which in 2017 will purchase 144 thousand tons of pipes: about half of the annual need for repairs.

Against the backdrop of this, the enterprise revised its production plans for 2017, reducing its volume by three times: up to 100 thousand tons of LDP. It is noteworthy that in 2016 the Safins planned to produce 200 thousand tons of pipes, but they did not dare to present the real figure. The reasons are clear: according to different estimates, the production volumes in 2016 at the Zagorsk Pipe Plant amounted to 30-40 thousand tons.

As a result, ZPP faced difficulties with payments on its credit obligations due to a shortage of working capital. The fact is that for the first two years the Safins paid only interest on a loan from Sberbank. And they did this, including through a subsidy from the federal budget, approved in 2015 by the Ministry of Industry and Trade of the Russian Federation for precisely these purposes. But in 2016 the term of payments on the body of the Sberbank loan in the amount of 4.1 billion rubles approached, and ZPP immediately applied for restructuring, which was approved in late 2016. Sberbank has changed the schedule of debt repayment, while the overall loan period remained the same: October 2024. At the same time, as a result of the restructuring of the debt, the main payments were postponed from 2017 to 2018.

Following ZPP, Isolation Pipe Plant proved incapable to timely fulfill its credit obligations; its CEO is the father of Denis Safin - Galyalkhak. Rescuing a family business, Denis Safin transferred IPPZ's debt to the Zagorsky Pipe Plant, and took out a loan of 1 billion rubles in Sberbank to repay the debt. Under the terms of the loan agreement, ZPP must repay the loan in full during 2018. In addition, the contract also contains fairly strict requirements, for example, to conclude before July 1, 2017 contracts with counterparties to the amount of 5 billion rubles.

"The plant is working, supplies are on, there are no problems with the sheet metal, and even with the loading of 100 thousand tons of pipes per year, this money will be returned," Denis Safin noted earlier. Experts, in turn, are skeptical about the prospects for repayment of loans in the current circumstances: at the amount of 100 thousand tons, even if the company's management tries to optimize its costs by partial non-payment of taxes, wages and non-compliance with the loan payments schedule, such a project is unlikely to pay off.

A new credit line in the amount of 1 billion rubles to save IPP Safin opened with the help of aforementioned Nikolay Yegorov, once again secured the firm word of the head of Sberbank. However, in this case, Mr. Yegorov lobbied a very controversial decision, since the assignment of a loan from IPP to ZPP threatens Sberbank with serious problems, not including reputation losses. Today, Zagorsky Pipe Plant has no large customers. In making the decision to restructure, Sberbank's employees had to take into account that in 2017 the LDP market will narrow even more, so ZPP will not receive new orders and will not be able to service the loan.

In addition, the Insulation Pipe Plant is now on the verge of bankruptcy. In the near future, a number of claims are expected to be considered, including LLC "TD Polyplastic", PJSC "Chelyabinsk Tube Rolling Plant" and LLC "Dow Izolan" on recognizing IPP as insolvent. As the main argument, the plaintiffs show the fact that the Isolation Pipe Plant did not pay for the products delivered to it. At the moment, IPP has been sued for a total of more than 320 million rubles. And as it follows from the loan agreement with Sberbank, if the guarantors of the Zagorsky Pipe Plant are sued for payment of a sum of money the aggregate amount of which exceeds 300 million rubles, ZPP is obliged to repay the loan in the amount of 1 billion rubles in full. And, as indicated in the same document, the Insulation Tube Works is the guarantor of ZPP.

In 2016, a year unfortunate to the Safins, the Ministry of Industry refused to receive the next subsidies in the total amount of 350 million rubles to compensate interest on the loan due to the failure to comply with the terms of the investment project, that is, the actual production of large diameter pipes, as well as violations of the agreement on subsidizing.

The long-awaited but not salutary certification of Gazprom

Since the launch of the production, the management of the Zagorsky Pipe Plant has made active attempts to obtain certification of Gazprom, the largest consumer of LDP. In February 2016, the first pilot batch of ZPP pipes failed the test in VNIIGAZ. Gazprom specialists accepted the second batch of products, but with a number of reservations. Claims against the quality of these LDP were confirmed by the findings of the leading industry organization - Bardin TsNIIchermet, which did not recommend the use of ZPP pipes in the trunk pipelines.

However, Nikolay Yegorov had truly unlimited lobbying opportunities: the other day the Gazprom special commission approved the technical conditions for LDP for the production of ZPP for main and commercial gas pipelines for two years, until March 2019. Certification applies only to supplies for repair and maintenance needs.

At the same time, experts forecast significant risks of Gazprom's cooperation with a Moscow-based enterprise, pointing to the lack of experience of ZPP in a number of areas. This is the interaction with the suppliers of a wide sheet on the requirements of Gazprom, and maintenance of gas pipelines of increased complexity, and work in markets where the warranty period of operation of the pipe is more than 30 years.

An equally important problem for the Safins, Nikolay Yegorov and the development of the Zagorsky Pipe Plant as a whole can become another circumstance. They may face opposition from influential veterans of the pipe market who are not happy about the new participant. The matter is that the rules of the game on the LDP market for Gazprom continue to be secretly set by Arkady and Boris Rotenberg, who officially withdrew from the pipe business, focusing on the construction of gas pipelines and other infrastructure facilities, and announcing in 2014 the liquidation of the Northern European Pipeline Project . It is this company that for almost ten years has mastered the lion's share of the budgets for the supply of pipes for the gas monopoly. But in fact the Rotenbergs retained their influence on the pipe market through the controlled company "Pipe Investment Technologies" of Ivan Shabalov, whose share in the total volume of LDP purchases for Gazprom exceeds a third.

When business goes to the bottom

As a result, now the Safins face another task - not an ambitious entry into the LDP market with large contracts, but a survival and salvation of the pipe business. Both the Zagorsk Pipe and the Isolation Plant had a catastrophic situation, close to a social explosion. The credit load is growing, there are not enough working capital, the facilities for servicing credit obligations are decreasing, the enterprises are in a state of virtual idle time, wages are not paid for several months. Former and current workers of both plants complain massively about hard working conditions, lack of medical care. Interestingly, the Safins staffed the staff of their holding mainly at the expense of people from the Ukrainian Khartsyzsk Pipe Plant, and not residents of the Moscow region, in order to optimize the costs of the payroll. For the sake of economy, the owners of companies even turned a blind eye to the fact that many employees have obiously insufficient qualifiaction.

The Safins' family business due to numerous objective and subjective reasons is falling apart, and, hoping for the salvation, they have nothing else to do but give up the shares in the capital to the patrons. And, it must be noted, Nikolay Yegorov, who convinced Herman Gref to support the young company, is a powerful lobbying tool for the Safins, who helped secure the willingness of the head of Sberbank and a number of top managers of the gas monopoly.