INTERVIEW: Raspadskaya looks east

By bne IntelliNews May 30, 2011

Rachel Morarjee in Moscow -

A year after a mining disaster that killed 90, Russian coal giant Raspadskaya is setting its sights on the Chinese market and working to raise transparency at the company.

Raspadskaya hit the headlines in May 2010 when a methane gas blast ripped through an underground mine in the coal-rich Kuzbass, followed hours later by a stronger blast that wrecked the mine's main ventilation shaft and badly damaged buildings on the surface. Prime Minister Vladimir Putin said repairs at Raspadskaya's largest mine would cost RUB10bn ($320m) - a price tag that will be borne largely by stakeholders and owners of the mine.

Deputy General Director Alexandr Andreev tells bne that the coalminer, which holds 10% of the Russian coking coal market, will need some months before it is working at full capacity in the wake of the 2010 methane leak. For 2011, the main mine will produce 2.5m tonnes of coal, well below full capacity, while repairs are ongoing. He did not give further details about the technical repairs on the damaged mine. The company aims to produce 8.5m tonnes of coal across all of its operations this year. "The coal industry needs to pay attention to efficient equipment, human skills, to use its reserves efficiently and have good communication with clients," says Andreev.

Over the last five years, the company has made great strides in becoming more open and changing its corporate culture to respond to institutional investors who bought its bond and stock issues. Raspadskaya was the first Russian coal company to IPO, listing on the Russian stock exchange in November 2006. "After this process, we had to keep much better standards of corporate governance because our employees began to understand the importance of investor relations," says Andreev. "Our top management put a lot of effort into becoming more transparent, because we had institutional investors from the UK, the US, Scandinavia and other European countries. We had to invest a lot in communications."

New markets

Before the mining disaster, the global economic crisis proved a wake-up call for the company, signalling the critical importance of exploring new markets and breaking the company's traditional reliance on the Russian and Ukrainian markets. Raspadskaya is one of the leading suppliers to the largest Russian metallurgic plants, including NLMK (Novolipetsk Steel), MMK (Magnitogorsk Iron & Steel Works) and NTMK (Nizhniy Tagil Iron & Steel Works) and Kemerovo Koks.

However, the downturn in the Russian economy made it clear to top management that the company had to look overseas for new markets. "We changed our strategy in the middle of 2009. It was not easy to make the transition and find new customers, when we found the Russian and Ukrainian market could no longer absorb our production capacity," says Andreev.

China has become a key market for the company. In 2010, Chinese coal exports from Russia stood at 4.5m tonnes in 2010, compared with just 2m tonnes in 2009. In 2010, 30% of Raspadskaya's sales were export sales. "We changed our direction, decreased Ukrainian market and increased significantly our Chinese market sales. In 2010, 62% of our all our export sales went to China, versus only 10% in 2009," Andreev says. "We would like to increase exports sales in the coming months, but after the incident in our main mine it will take time to build up capacity again. We would like to keep the share of exports at not less than 35%, and hopefully more."

The company aims to increase its Asian sales and is targeting growth in the Chinese and South Korean markets, through different methods ranging from long-term contracts to spot sales.

However, bottlenecks in the seaports of the Russian Far East remain a problem and could stymie further growth. At present, there is only one year-round border crossing over the Amur river that divides Russia from China on the TransSiberian railway, although there are plans to build a new rail link at Birobidzhan to connect the iron mines of the Jewish Autonomous Region with the steel mills in north-east China. "For stable clients of Raspadskaya, we see that that we need to find capacity in sea ports, to deliver coal in long-term contracts, so we need to keep our own capacity in the sea ports for future export contracts and we need to work with port operators to clear bottlenecks," says Andreev.

For Raspadskaya, the future means looking east. Although the concerns of western investors remain a key consideration for Raspadskaya's management, it is Chinese clients who will provide the foundation for future growth.

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