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3 November 2011 Interview to Day

Where Are We Heading?

Dmitry Firtash: If We Are Strong, We Will Be Reckoned With

According to Ukrainian media ratings, Mr. Dmitry Firtash, Head of the Board of Directors of Group DF and Head of the Joint Employers Movement of Ukraine ranks among top-10 of the most influential people of Ukraine. Notwithstanding this fact, Mr. Firtash waves off the questions about the magnitude of his influence and says that he is just a businessman, assuring that he is not going to be involved in politics whatsoever. How will the empire called Group DF evolve? What are the targets for Mr. Firtash’s planned investment of US$5 billion? How does the entrepreneur squeeze Russians out of Ukraine’s fertilizers market and why should Ukrainians be more cunning? These and other questions are addressed in the interview Mr. Dmitry Firtash gave to Den daily.
Q.: The unification congress of the Federation of Employers of Ukraine is scheduled for the 29th of November. Could you explain why this unification is imperative?
A.: Ukraine does need a strong Federation of Employers. There must be a single platform for advocating interests of people creating jobs and developing the national economy. When they invited me to head the employers’ movement, I carefully examined the situation and realized that this platform may be a lot more efficient if the organization is strong. A disintegrated organization cannot be strong. For it to be able to protect the Ukrainian business, to impact the processes within the country, to incorporate new companies and to create jobs, the employers’ movement must be solidified. This will enhance Ukraine as a state.
Q.: If you are invited to head the unified Employers Federation, will you accept it?
A.: I initiated this process which automatically makes me responsible for it. It has been a year now since I came in to steer the employers’ movement. Bringing all organizations together matters immensely for us as it is critically important for the nation. Given the current challenging circumstances in Ukraine, employers must be there to lend their helping hand to the government. We have been doing quite a lot in this connection: creating jobs, paying taxes, exporting goods, securing currency inflow into the country. But the government in return has to help businesspeople too, doesn’t it? The government like no one else must care for the industry. Just look at how Russians, Chinese, Europeans are promoting their businesses in foreign markets. Should we be any different? By protecting the Ukrainian industry we care for the nation’s well-being. We have already agreed that the President, the Prime Minister and the Foreign Minister in all their foreign trips will be paying more attention to how Ukrainian businesses operate internationally. A General Agreement between employers and the Ministry of Foreign Affairs of Ukraine focusing on supporting Ukrainian exports is already working. We can influence the formation of official delegations suggesting the inclusion of Ukrainian entrepreneurs whose businesses depend on exports growth.
The national business protection is a must. At our last meeting with the government, we explained what exactly we dislike about Ukraine’s membership in the WTO. The Prime Minister explicitly stated that employers must be an active part of workgroups dealing with the review of Ukraine’s WTO membership conditions. The Prime Minister also counts on employers participation in efforts aimed at the Tax Code and Customs Code improvement.
Q.: Recently, the Head of the state was quoted saying that Ukraine will take its time with signing an EU Association agreement. As you represent Ukraine’s large-scale business, would your business be better-off within the Customs Union or in a free trade zone with the EU?
A.: For me as a businessman, having Ukraine in the European Union is a more lucrative proposition. Just because I don’t sell anything to Russia except for titanium dioxide. Therefore, moving towards Europe makes a better sense for me. But the decision is to be made by the government. If I were the one to make this decision, I wouldn’t have rushed with it. I would have divided a sheet of paper into two halves writing down pros in one column and cons in the other one. We have to be clear on what the EU gives to Ukraine and what Russia does. Plus, I am not sure that the European Union is an answer to all our questions. Just look at what’s happening with their economies.

Q.: Then what can be an alternative for Ukraine?
A.: Ukrainians themselves…
Q.: But we can’t trade with ourselves…
A.: If we are strong and we know what we are doing, we will be reckoned with. Here is an example. Before the fertilizers market was consolidated in Ukraine, everyone felt at home around here. Ukraine was being completely neglected – all enterprises would function at 20 % of their capacity. Over a year, we put in place a clear market strategy, and now plants operate at a 110-percent capacity. The State Statistics Committee comments on this performance as an achievement but people tend to forget that this is a fruit of the companies’ profound modernization and sizeable investment in them. Over this year, a market position of Ukrainian nitrogen producers has substantially changed – we managed to regain 30 percent of the market winning it back from Russians.
Q.: A year ago you started consolidating nitrogen chemicals enterprises and now you own four Ukrainian plants. What are your plans with respect to your chemical assets augmentation?
A.: For us, chemistry is a strategic avenue. We have devised the chemical industry development program for 5-6 years to come, splitting it into two priorities. The first one is nitrogen, the other one – petrochemicals. In the former, we have already invested a billion hryvnias, we have raised the plants’ outputs to 110 % of their capacity, we have completed major repair and reconstruction works. By the end of the year, another US$220 – 230 million will have been utilized. We are putting in place a network of chemical warehouses-supermarkets, sort of retail outlets where any farmer can come along and buy all sorts of chemicals they need – from fertilizers to plants protection agents. The products will be supplied right from the enterprises which makes it a very consumer-friendly arrangement. No one has ever done it before.
Q.: Are you eyeing an acquisition of Odessa Port Plant?
A.: I’ve said long ago that if OPP is offered for sale, we’ll go for it. This plant is tremendously important for us. I participated in a tender in Russia bidding for Minudobreniya but I lost. We wanted to acquire Rossosh (OJSC Minudobreniya) because this is a great asset, great business. But Russians didn’t let us make it.
Q.: A Russian entrepreneur Arkadiy Rotenberg acquired Minudobreniya. Do you regret losing it?
A.: Of course I do. We won in something else however. We have driven them to a necessity of coming to terms with us with respect to approaches to joint distribution. Whether or not I acquired a plant is not the most important thing. What does matter for me is that products be shipped to Yuzhnyi port from one company. There are only three places in the world shipping out ammonia exports and Yuzhnyi is one of them. We managed to develop the distribution logic which is a win-win solution. On the one hand, building up a distribution logic coupled with products diversification will enable Ukrainian companies and the Russian enterprise to increase the total volumes of export sales. On the other hand, we are secured against mutual dumping in foreign markets.
Q.: By the way, Arkadiy Rotenberg also claimed he was going to bid in the OPP privatization tender…
A.: He sure will. If he says so, he sees his strategy in it.
Q.: Today, the markets of India, Pakistan, China and the US are the most attractive for chemicals producers. Are you eyeing plants acquisitions in these countries to manufacture products there?
A.: At this point, I am negotiating an acquisition of companies in two countries whose markets are of strategic importance for us.
Q.: To what extent do you plan to raise the chemical sector’s export potential due to the acquisition of the Maritime Specialized Port Nika-Tera? And how much are you investing in its development?
A.: At present, the port reloads 4-4.5 million tons of products per year. The first phase of the port development is about US$150 million worth of investment. In eighteen months, Nika-Tera must increase its throughput capacity to 12-15 million tons. Further, we plan to expand the in-port warehouses: this will facilitate fertilizers export.

“Chemical Industries Won’t be Resold “

Q.: They say that once the chemical industries consolidation is completed, you will sell your business to Russians.
A.: It isn’t true. And hearing such allegations always amazes me. When someone is up to selling something, it shows. When someone is up to selling something, he will paint and polish it up to have it look good. Wasting huge capitals  doesn’t make sense. I acquired plants, I have been developing the infrastructure, building up a logistics system, chemical supermarkets network, expanding capacities, creating a petrochemical development program… From scratch! We have been doing something that no one before us ever did! My 5-year petrochemical development program at four enterprises is spelled out for US$2.8 billion worth of investments. The petrochemical sector development is extremely promising. Ukraine has completely yielded its positions in this market and we, by and large, import low-tonnage chemicals from either Russia or Germany. We have carefully examined what is being shipped to Ukraine, how much is being shipped and how much Ukraine will consume. I mean, we can at least try to fight for our market. And if we succeed, our second step could be organizing Ukrainian products distribution in Europe.
Q.: How do you see Ukraine’s chemical sector positioned at the world arena eventually, say in 5 years from now?
A.: The chemical sector of Ukraine is facing very promising prospects internationally. That is my strong belief. Say, Ukraine is spending X amount of hard currency for its imports. Now, what is the country importing? Big bags, polypropylene, Styrofoam, plastic tableware, lacquers, paints, etc. How can a country be successful as long as it has a negative currency balance? That is we import more than we export. If we set up domestic manufacturing of the products Ukraine is importing now, we will seriously improve our currency balance situation. We will sate the domestic market’s appetite with our products. In parallel, export capacity should be furthered.
Q.: Some outlooks were voiced alleging that it’s not before long that the gas price for Ukraine may go beyond US$500 per thousand cubic meters. Is this rate affordable for the country?
A.: Obviously, the country needs a clear gas price because Ukraine is not prepared to pay the price applying today. And I mean both the general public and the industry. Back in 2008, when I was supplying gas to Ukraine, I would say to Russians that the real price to their gas must be US$180-200. The country can and should pay this. This is the price with which the market will work. But at that time, the gas price was subsidized at the expense of RosUkrEnergo’s sales of Central Asian gas to Europe. It couldn’t have worked any other way as otherwise the Ukrainian market would have collapsed.
The contracts signed in 2009 are unfortunately not to Ukraine’s advantage. No letter, no even a smallest comma contained there are to Ukraine’s advantage. Everything that Gazprom ever dreamed of seeing enshrined in the contract with Ukraine is in this contract. So, what do we get? Either she [ex-Prime Minister of Ukraine Yuliya Timoshenko] was very well aware of what she was signing, or she never cared to read the contract. I can’t regard her as an imprudent person. Hence, there must have been a reason that made her sign the contracts forcing Ukraine to pay US$400 or 500 per thousand cubic meters. This is not the nation’s strength, this is the nation’s failure and weakness. Our country has ended up in a very difficult situation. I am always astonished with statements made by people calling themselves “experts” who argue that the gas price for the industry shouldn’t be a concern for the general public. The gas price for the industry is the key question for both the general public and the government. Because the gas cost will affect the price of products manufactured in Ukraine. At the price of US$500-600, the Ukrainian economy cannot compete internationally. Whether or not the companies are able to sell their products will determine whether or not enterprises will remain operative and whether or not millions of Ukrainians will have their jobs.
Q.: Ukraine has been pursuing quite tough negotiations with Russia. In your view, what arguments may our country resort to in order to decrease the gas price?
A.: The Presidents of Russia and of Ukraine have stated that they are nearing an agreement. I don’t know the details as I am not involved in the talks.
Ukraine’s objective today is to remain in discussions with Russia. Many have argued that the Ukrainian pipeline is something irrefragable and that it will always remain filled, while I, since 2003, have been maintaining that problems may well arise here.
Russia stated that they would be building the “North Stream” pipeline bypassing Ukraine. At that time, this message was perceived with a lot of skepticism and not many believed that the pipeline will be built. I said that the project was very realistic. Because Russia has the resources for making this project happen and they will be pursuing this political alternative. It makes a perfect sense for Russians. Now, did they launch the “North Stream”? They did. Was I right? I was.
After that, everyone would say that there will be no “South Stream”. Let’s see: earlier in September in Sochi, there was a meeting between Gazprom and European energy companies like Eni, Elictricité de France. They all became shareholders and entered the board of directors of the company building the “South Stream”. Can you see what’s going on? The “South Stream” becomes a reality. And for this reason Ukraine is dropping out of the system of gas transit to Europe. Previously, Ukraine used to transit 128 billion cu meters of gas per year, whereas now it does 85-90 billion. The “North Stream” is working. Now, if they complete the “South Stream” on top of that, Ukraine will end up with as little as 20-30 billion cu meters a year. My question is: who needs Ukrainian pipeline with its 30 billion cu meters of transit? Ukraine will spend more money on its maintenance than it will earn from the gas transit.
I think that what Ukraine should do is to give Russians a warm hug and kiss and then to collect what belongs to Ukraine. We have to maintain a dialog with Russia to see to it that they don’t build the “South Stream”. There’s no other way to keep Ukraine’s transit advantage.

“I Suggested to The Government That a Titanium Holding be Established Wherein The Government’s Share Would be 25 Percent“

Q.: At an earlier time, you said that you wanted to create a titanium holding partnering with the Government. The President of Ukraine has recently signed a law talking about titanium industries corporatization. What are your plans?
A.: The titanium sector, as well as the chemical one, will enable Ukraine’s successful competition in the world markets. This however requires that companies be consolidated and modernized. The government has no cash to invest, companies operate inefficiently. That’s why I suggested to the government that a private-public holding “Titan Ukrayiny” be established wherein the government’s share would be 25 percent. I am sure that if this holding becomes a reality, the government will be earning profits instead of incurring losses the way it does now. We have drawn up an investment plan already. For instance, after an upgrade, Sumykhimprom will be able to increase its phosphorous fertilizers outputs by 2.5 times and titanium dioxide outputs – by 4 times. At Krymskiy TITAN we intend to almost double outputs. And the same is true for all the companies. The total investments portfolio in the titanium sector development program is expected to exceed US$2 billion.
Q.: Have your expectations about Nadra Bank acquisition been met?
A.: I think that Nadra Bank is evolving very well today. Since the year start, the bank has won over 300 thousand new individual clients. Plus, over 1.5 thousand corporations have moved to the Bank for servicing their payroll accounts. All companies belonging to our Group have also transferred their accounts to this bank. All this makes Nadra’s liquidity more than sufficient. It is issuing loans to a number of projects critical for the country and plays an essential role in the companies’ growth and new jobs creation. If I hadn’t believed in this bank, I would not have had my assets serviced there. Also, I believe in this bank because I know who steers it. I am very happy with Valentina Zhukovskaya, the Bank’s Chairwoman of the Board. If it weren’t for her, this bank would have happened. You know, I keep saying: in each project a personality matters a lot more than the company’s name does. The company’s name is not important – it is about one person in it. And if it is the right person, and if he or she knows how to attain goals, then the company is a success. This is a life-tested fact.
Q.: You have been financing Cambridge Ukrainian Studies Program. Why would you do it?
A.: I was born in the West of Ukraine, I am a Ukrainian. And I do want to make sure that people across the world know about our country, about its millenniums-long history and its rich culture. Six years ago I visited Cambridge University for the first time to find out that the Russian program has been working there for over 60 years. At different times, different national programs were opened but the Ukrainian one was missing. It barbed me. And I used every effort to make sure that the Ukrainian language and the Ukrainian culture become part of the Cambridge studies. This is not simply a Ukrainian language department – students explore the culture and history of our land. At least twice a month, the University runs activities related to Ukraine. It is sort of unofficial embassy at the University rated the best in the world. We spent four years to have this project launched. Initially, Cambridge started this program as an experiment while last year it became a permanent program. Today, there are about 50 students studying the Ukrainian culture and language: Americans, English, Germans, Chinese… Can you believe it how Ukraine is interesting? Soon, their apprenticeship will be organized in Ukraine. Cambridge chose the Ukrainian Catholic University as a base for it.
Q.: You provide assistance to this University by contributing into its campus construction, don’t you?
A.: Yes, I do. This University has a very special teaching methodology and style. People there are brooding of the creation of a European-type University. I want Ukraine to have its own Cambridge. By 2015 when the construction is over, UCU must become a center of modern European education in Ukraine.
Q.: Does your budget contain a special entry of social expenditures?
A.: Many of the companies I own are principal employers in cities they belong to. And I clearly realize it that the quality of life in these cities depends on these enterprises. Let’s take Armiansk for example. Krymskiy TITAN based in this city has financed the cost of the local hospital’s capital refurbishment and acquired medical equipment for it. It has funded the reconstruction of the city’s central square and the municipal street lighting system. I was there a week ago and I saw that the city still needs a lot of assistance. A new water supply pipeline has to be laid, sewage system replaced, halls and staircases in blocks of apartments are crumbling down, elevators are out of order, roofs leaking. I looked at it and I said that in three years from now the city will transform. The people who heard me say this had their faces enlightened while the plant manager grabbed a calculator. And he quite fairly asked me why the company pays taxes but the government takes no care of the city. My answer to him was: sorry guys, but unless we do it now, one fine day this city will be dead.
Three weeks ago I was in Cherkassy. I instructed the plant there to remodel the city culture club and Cherkassy’s central square. And that’s the way we go in each city – we’ve been spending huge budgets for cities beautification because it is critical for the people. We do a lot of support to sport teams at our enterprises. For instance, a volleyball team of Krymsoda is a core of Ukraine’s national volleyball team and a leader in the national championship. We do many things for kids, too. They understand that they have a dream and a goal, they go in for sports at enterprises’ sport schools instead of roaming down backstreets with syringes.
Q.: Ukraine went independent 20 years ago and today many people argue that back then the country paved the way wild capitalism. Do you believe we faced an alternative route?
A.: Let’s get back to the times when the USSR disintegrated. Did you see a lot of expatriates willing to buy something in Ukraine? Look back at what was then. Nobody could understand what was going on: roubles, coupons, inflation, followed by hryvnia. I think that Ukraine was fortunate to have Kuchma as its President at that time. I don’t have a reason to commend him, he gave me nothing. I didn’t privatize anything first-hand, all assets I aquired came from the secondary market. And I paid my own cash, too. He may have sold some assets at a cheaper price but first of all, nobody wanted to pay more for them. Second of all, the “cheap vs. expensive” notion is very conventional as yesterday a plant could cost a dollar and today, amidst the crisis, its price would a couple of pennies. At that time, the government was faced with a dilemma: to sell or not to sell. Back then, the government couldn’t steer, though even today, the fact of life is that the government cannot be an effective owner. Because sometimes it happens that bureaucrats come along not to build up but rather to seize what they can. And they couldn’t care less about what’s going to happen after them…
I don’t know whether the country did have another choice at that time. Even though many people say that things could have rolled out in a different way, I think that the right decision was made then. 20 years is a very short period of time for the nation, and we passed this way very decently.