Kommersant: Mordashov asked the President of state support in Sveza’s pulpmill project

As became known to Kommersant business paper, Alexey Mordashov has asked President Vladimir Putin to support the project of his Sveza Group on creation of a pulpmill in the Vologda region worth $2 billion. The plant should become the anchor of the regional SEZ to receive benefits. The government has already approved the transfer of land category for its creation. But the payback period of the project is over ten years, so without large-scale government support it is non-feasible, experts say.

The major shareholder of Severstal and Silovye Mashiny Alexey Mordashov has recently met with Vladimir Putin. According to official information, they discussed the situation on the market and in Mordashov’s companies, as well as social obligations. However, Kommersant’s sources familiar with the meeting say that the main emphasis in the closed part of the meeting was made on the construction of a pulpmill by Mordashov’s woodworking group Sveza in the Vologda region, with rated capacity of 1 million tpy.

Sveza signed an agreement on construction with the regional government in October 2013. It is expected that the project will be implemented through a public-private partnership: Sveza will become the anchor resident of a special economic zone, and the state should fund the development of infrastructure, provide tax incentives and guarantees for loans. The residents of SEZ receive five to ten years of exemption from property, transport and land taxes and the possibility to cancel the regional part of the tax rate on profits.

Kommersant’s sources say that Mr. Mordashov asked Vladimir Putin to assist in the implementation of the project. The President’s press secretary Dmitry Peskov and the representative of Severstal has refused to comment on the closed part of the meeting. Deputy General Director of Sveza Boris Frenkel also did not discuss this issue, but assured that “the project is moving”, in particular the land issue has been resolved.

The plant is expected to be located near the village of Roshchino on 350 hectares, and the whole SEZ will take about 1300 ha. Until recently, the territory belonged to the forest lands of the first category, and only on 13 January the disposal of the government came out for transfer of lands to the industrial category, allowing regional authorities to apply to establish a SEZ, explained Boris Frenkel.

Among potential residents could be equipment manufacturer with a maintenance centre (Finnish and Austrian suppliers are discussed), the logging equipment service centre, a potential plywood mill of Sveza to process plylogs.

In addition, the company is negotiating with manufacturers of chemicals for the plant, while regional authorities seek investors willing to establish a large sawmill there.

According to Boris Frenkel, after the resolution to establish a SEZ in the Vologda region, it should take two months for preparatory works, 18 months for designing and 32 months for construction. Investment scope of the project is still estimated at $2 billion, but the company is no longer looking for foreign partners and is going to attract a bank loan (70% of the cost). Sveza requests state guarantees in the amount of up to 50% of the funds raised. “The project would have a high operating margin, but due to the large expenditures, payback is over ten years,” explains Mr. Frenkel.

Chief editor of WhatWood Kirill Baranov, commenting the news to Kommersant, noted that major Russian pulp and paper mills has carried out large-scale modernization projects in recent years, but the country has not built a single new greenfield pulpmill for 40-50 years, so the project of Sveza is surely important for the industry, as the demand exists both in Russia and abroad. But given the expensive imported equipment, the devaluation of the rouble and the overall macroeconomic situation, without significant government support this project is impossible to carry out. Among other risks of the project are high demand for raw materials and lack of qualified staff in the market.

Photo: Gleb Shelkunov / Kommersant

Source: Kommersant