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Interview with Andrey Varichev, CEO of Management Company Metalloinvest «The Russian metals and mining sector is generally a very good case study of import substitution in general and proactive import substitution in particular»

August 14, 2018 News
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How is Metalloinvest operating in the times of import substitution and is it realistic to say we have reached the stage of proactive import substitution? What are your key takeaways from the sanctions? What impact do foreign policy and politically-driven events have on the financial performance of your company?

The Russian metals and mining sector is generally a very good case study of import substitution in general and proactive import substitution in particular. Our sector has shown how successful industry development can be with the use of an effective strategy and thoughtful management. Over the period between 2000-2010, we managed to build a highly progressive and technological metals and mining sector, thanks to the Companies’ well-targeted policies of investing trillions of roubles in the construction and modernisation of our industrial capacities. Today, Russia is among the global leaders in the production and export of iron ore products, steel and non-ferrous metals.

Metalloinvest has a long history of partnership with Russian producers: we do our utmost to ensure we procure resources, parts and raw materials that originate in the Russian Federation. However, certain types of product, such as specialised steel-making equipment, do not currently have alternatives on the domestic market.

Politically motivated decisions, limitations and protectionist measures undoubtedly create a risk and weigh on the successfully functioning mechanisms of the global market. It is often said that there are no winners in trade wars – everyone loses to one degree or another in the end, including producers and customers in different countries.

Metalloinvest is not included on any of the existing sanctions lists. We continue to supply high quality iron ore raw materials and steel products to customers in Russia and abroad. Metalloinvest has established long-standing partnerships with many of the largest consumers globally, which enables us to react to any market changes and divert supplies quickly.

Which innovations have been introduced into your production? Do you have anyone working in your enterprises to increase the efficiency of the Company? Do you use any energy-saving technologies?

At Metalloinvest, we are convinced that being the market leader is not just about having the right strategy and constructing an effective business model but is also about every member of the organisation pledging commitment to the process of constant operational improvement. We currently have several projects running simultaneously at our sites to enable constant improvement and implementation of innovation, which are all part of our Industry 4.0 programme. The main aims of the programme are to transform the Company’s business processes, increasing their efficiency and the precision of our planning and implementation. For example, the unified production system, which is based on global best practice, allows for continuous production improvement and minimises waste. The production system enables us to equip our staff with extensive range of innovative and efficient tools. This brings about wide-ranging economic benefits, such as a reduction of wasted energy resources and raw material costs, increased equipment and labour force productivity, and a reduction in the cost of products, among other factors.  

There are several examples of innovative and operational improvements, of which I will name just a few. Last year, at the casting facility of Ural Steel, we launched the production of slag pots for pig iron casting production. Workers at our production facility produce slag pots of an excellent quality, which enables us to avoid purchasing them from foreign suppliers and increases the operational efficiency of the whole Company.

Another example includes Philips Lighting, which has reconstructed the lighting system at three of Metalloinvest’s enterprises: Lebedinsky GOK, Mikhailovsky GOK, and OEMK. As a result, our use of electricity has decreased significantly. We estimate that the cost of the new lighting equipment will pay off have paid itself off within two years and will lead to savings of around 30.5 million kW-h per year, which equates to the electricity use of a small city!

Significant improvement of our management and analysis, and transformation of our production and internal business processes will be soon possible with Metalloinvest’s integrated business management system, which we launched as a pilot project in April 2018 at Lebedinsky GOK, using the SAP S/4HANA business suite.

What are you doing for the environment? How do you deal with waste?

We are convinced that environmental awareness is one of the most important competitive advantages, and its significance has grown in recent years. Conserving our climate and reducing waste products and our impact on the environment have become our key priorities. Our customers are paying increasing attention to how environmentally friendly our production is across the whole production chain.

Greater environmental awareness has paved the way for new opportunities for Metalloinvest to strengthen its positions on the high-value-added product market, namely the high quality rolled steel (SBQ) bars market. We supply our customers with SBQ which has been produced with minimum possible impact on the environment at all stages in the chain of the production process – from extracting the iron ore in open-pit mines at Lebedinsky GOK to the direct reduction of iron and crude steel in the electric arc furnaces at OEMK.

Metalloinvest pays great attention to minimising the impact of our production on the environment. Each year, we invest more than 6 billion roubles in upgrading equipment, installing new filters and waste gas and water purification systems, and land recultivation. The results of tests carried out by independent laboratories confirm that all Metalloinvest enterprises have a significantly lower impact on the environment than the accepted norms.

The modernisation works on the gas purification unit at OEMK’s electric arc furnace shop have been one of our major projects. The works enabled us to reduce overall emissions by more than double, while dust content in exhaust gases fell by over three times. Dust levels in steelmaking workplaces fell by an average of 50%.

Two of Metalloinvest’s investment projects were included in the main events of the Year of Ecology of the Russian Federation: the construction of HBI-3 Plant, the third complex for the production of hot briquetted iron (HBI) at Lebedinsky GOK, and the waste disposal facility at OEMK, which has a capacity of 1 million tonnes.

What role does digital technology play in the Company’s production? Do you use Russian technology and digital programmes, or do they come from foreign developers?

Modern industrial companies need to be flexible, react quickly to change and take decisions based on accurate analytical and operational data. As I have already mentioned, in 2016, the Company launched the Industry 4.0 comprehensive business transformation programme, which enables us to implement the best digital solutions and increase our operational and administrative efficiency.

During the implementation of the Industry 4.0 programme, Metalloinvest launched a Shared Services Centre, which combined finance and accounting, HR management, treasury functions, as well as centralised purchasing and other services.

The next stage of the Company’s digital transformation was the introduction of a single integrated system for managing the financial and business activities of enterprises using the SAP S/4HANA business suite. It centralises key business processes, enabling the Company to significantly increase the efficiency and effectiveness of managerial decision-making, as well as to reduce time spent processing information and preparing reports. The system was launched at the Company’s mining enterprises in early July 2018.

Many industries are currently experiencing a shortage of qualified personnel, as companies prefer not to hire young graduates to work, instead employing experienced professionals or attracting labour from abroad. This situation is contributing to the erosion of the domestic market of skilled professionals. How does your company address this issue, and does it employ young graduates from Russian universities?

The situation at Metalloinvest could not be more different – our company is open to talented and motivated young people. In 2017, more than 8% of the total number of employees hired by Metalloinvest were young specialists. To attract young professionals, the Company actively cooperates with specialised higher and secondary educational institutions. There are over 15 higher and secondary educational institutions who are partnered with Metalloinvest in the regions where we operate. Our main partner is the National University of Science and Technology MISiS, with whom we closely cooperate in educational programmes, research work and the development of new steel grades.

Metalloinvest’s students are offered internship programmes with the possibility of being hired in a permanent role after completion. Young professionals who have completed the training and mastered the specifics of Metalloinvest’s activities bring particular value to the Company and, as a general rule, quickly grow to become leading employees with a high level of professionalism.

What technologies does the Company use to protect the health of its employees? How is safety in the workplace ensured?

Ensuring safe working conditions and protecting the life and health of employees is Metalloinvest’s main priority. The Company has developed and introduced a series of fundamental requirements for occupational health and safety and approved a unified policy in the field of industrial safety, occupational health and environmental protection. Our goal is to minimise accidents, injuries and occupational diseases, as we truly believe that any accident can be prevented.

All employees are given clear instructions in the field of occupational health and safety and are provided with the necessary personal protective equipment. The assessment of hazardous production factors and the level of workplace safety is carried out through the implementation of measures for a specialist assessment of these conditions. Based on the results of this evaluation, comprehensive plans are made to improve working conditions.

Metalloinvest is committed to treating employees’ illnesses, including those related to professional activities, and introducing preventive measures to mitigate the risk of these illnesses spreading.

What is the level of income and social security of Metalloinvest employees?

We believe good work should be remunerated accordingly. The average monthly salary of the workers at our enterprises – Lebedinsky GOK, Mikhailovsky GOK, OEMK and Ural Steel – is approximately 1.5 times higher than the average wage level in our regions of presence, the Belgorod, Kursk and Orenburg regions, respectively. The Company also regularly conducts wage indexation in accordance with its collective agreements for employees.

We have developed a system of incentive payments to reward active participation and contribution to our Company culture, and we use non-financial incentives such as sports events, corporate competitions and awards to increase the involvement of employees in Company activities.

Social support is provided to our employees through our system of providing a range of benefits, guarantees and payments. The main provisions of these programmes for employees and their families are set out in collective agreements, which apply to all employees. In 2017, Metalloinvest’s spending on the social support of employees exceeded 3 billion roubles.

What is the impact of the Company’s regional activities and its overall contribution to the development of the country?

Metalloinvest is the largest iron ore producer in Russia and one of the leading manufacturers of steel products. Our enterprises, located in the Belgorod, Kursk and Orenburg regions, employ more than 50 thousand people. Metalloinvest is among the largest taxpayers in Russia – since the creation of the merged company in 2006, our tax payments have amounted to approximately 400 billion roubles!

The Company also invests heavily in the development of the regions in which it operates. We are creating new sustainable development models, which include the building of infrastructure, support for public initiatives, and the development of a project-oriented and entrepreneurial culture. In 2017, Metalloinvest spent more than 4.5 billion roubles on social investments and the creation of a positive socio-cultural environment in the regions where we operate.