Agricultural market Interview

Businesses are expanding to only places with conducive prospects for the growth and synergy

Paramjit Kahlon has been successfully managing ArcelorMittal Kryviy Rih for the last several years. He has already implemented strategic steel projects in India, China, Taiwan, the United Kingdom, France, Italy, and Russia. Mr. Kahlon commented to  on the Ukrainian part of his rich experience and his thoughts about the interaction of large business with both its own employees and the government.

: How long is the Company present at Ukrainian market?

P.Kahlon: It is already 12 years since we took over the former Kryvorizhstal (nowadays’ ArcelorMittal Kryvyi Rih) in 2005 at the televised auction by proposing the highest bid of 4.8 bln USD. Till today, many experts give it account of being the most fair, effective and transparent privatization cases in Ukraine. The plant itself was not a young asset, so it was obvious that significant investment would be required to modernize it and ensure that it could have a strong and competitive future. Since then we have sustainably worked on delivering the commitments undertaken by SPA (sale and purchase agreement) as well as on modernizing the plant, investing by now ca. 4.1 bln USD (2.5 for Capital investments and 1.6 for Operational ones respectively). The total contribution to Ukrainian economy has already reached ca. 9 bln USD making us the biggest foreign investor in the history of country and our plans of growth for the next few years envisage being another 1.5 bln USD investment till 2022.

As for the market presence, I would say that within the recent few years the situation has been changing drastically and all the market players have to align their businesses accordingly. We produce average 6 Mt of saleable goods annually and currently up to 80-85% go for export to about 60 countries and the rest is sold in Ukraine. However, it is not as easy as it may seem at first, as nowadays apart from demand going down and new emerging production capacities, there is a trend of growing protectionism in the world, i.e. exports are imposed with duties because in such a manner countries protect their domestic markets. Hence, the task is challenging, but our sales teams supported by the Group, put diligent efforts and succeed in finding the best opportunities to open new niches and explore the alternative markets, thus contributing into sustainable performance and retaining production volumes.

: What were the criteria to choose Ukraine?

P.Kahlon: First appealing factor was the greatness of the plant itself being the biggest mining and metallurgical complex of full-integrated cycle that is unique in its kind at CIS platform. Any company when joining new assets contemplates prospects for development, growth and attaining flagship position in the industry. ArcelorMittal is not an exception, so we believed in the Ukraine’s economic potential and had confidence that given the outlook for the country we could achieve a good return on our investment over the long-term. On the top of that, the country is a quite promising geographical choice, being in vicinity with many countries and presenting potential markets exploring opportunities, having proximity to the sea and huge raw materials amplitude. However, I believe, the biggest and most valuable asset of this country are the people having a unique range of skills, competences and experiences carried through by generations.

: What changes occurred at the Company during its life? 

P.Kahlon: We have made many steps forward but a huge way is still ahead. After the takeover, the target was to bring the plant to a new level by abandoning the outdated and obsolete processes, maintaining the existing facilities and modernizing them on the way forward, which required huge investment program. As I already mentioned, over 12 years our total investments along with the acquisition value amounted to ca. 9.1 bln USD and on the top of that, we have plans of spending another 1.5 bln USD investment till 2022.

At Mining and beneficiation complex, for example, we managed to implement many projects and initiatives of a great significance, incl. the advancement of blasting operations, upgrading of haulage equipment and heavy trucks fleet, conducted capital repairs of crushers, improved extraction and beneficiation processes, explored new horizons at underground mines etc.

Talking about Steel Plant, the investment program also brought plenty of improvements and great achievements on the way of the plant development and upgrading of the core processes. Till today ArcelorMittal Kryvyi Rih (further AMKR) stays the only in the world producing the billets (also called hot rolled ones) through the ingot casting and blooming route. That is why in 2011 we have successfully built and commissioned our first steel billet continuous casting machine of 1.2 mln tons capacity per annum. By the way, this year we have started construction of another two machines of twin type with the capacity of 1.4 mln tons each; on the way forward, they will allow us to abandon the obsolete and less effective ingot-to-blooming technology.

When it comes to the big projects, the period of 2015-2018 was the most eventful and many of them are worthy to be mentioned. Complete reconstruction of blast furnace No.6, modernization of sinter plant – 2, construction of pulverized coal injection unit, capital repairs of three basic-oxygen furnaces (No.4, 5, 6), construction of two new coke-oven batteries (No.5&6), reconstruction of light-section mill No.4; and many more which were done, started or being further in the pipeline such as construction of new sinter plant, for example, being supported by EBRD and representing a combined investment of 350 mln USD.  On the top of that, special attention is given to the environmental footprint by constructing numerous gas-cleaning units in parallel with the repairs, modernization and construction of new facilities at both Mining and Steel Plant.

Additionally, I would like to mention last but not the least important fact related to the change of people’s mindset, operational discipline and safety at the operational sites, among both own personnel and contractors. We managed to reduce 2.5 times the accident frequency rate and achieved the lowest level of 0.37 in 2017 (Vs. 0.96 in 2006). Nevertheless, we are still far from ideal and in this regard, having room for improvement is still not enough until we reach zero.

: What challenges did you face while working in Ukraine? How did you manage them?

P.Kahlon: We started our business in Ukraine 12 years ago and became the biggest investor in the history of the country, hoping to build successful business close to the Black Sea. During this time, the country had both rises and falls. We saw the Orange Revolution, the crisis in 2008, then conflict in the East and finally, the Euromaidan. So, time in the country is not very stable and thus, not very good for investor.

However, we are more concerned about the labour code of Ukraine. You know, it has had no changes since the Soviet time. The Soviet labour laws, which are still valid, do not ensure enough freedom and system for efficient labour organization. For example, our Company has 10 active trade unions and each of them puts forward new demands every day. We are under huge continuous pressure. During recent 10-12 years of our activity in Ukraine, we faced numerous groundless protests. We are concerned about the fact that every second or third person raises and speaks about protests and strikes. It is bad example for other investors. You understand that investors would like to feel support from both the community and the government. And we still have no tranquility, which is so needed for the business. So, the labour laws require significant reforms.

Our Company has one of the highest salaries equal to 13000 UAH. In 2017, we increased the salary by 70%, implemented grading system. In 2018, we have already increased the salary by 35%. Besides, we invest in social sphere of the Company. Last year, we spent 342 MUAH for social programs. This year, the expenditures grew to 391 MUAH. This money is spent for improvement of social standards for the staff, as well as for health improvement and rest of our employees and their families. Moreover, owing to our Company, thousands of our employees’ children study English and IT for free.

We are also a reliable social partner of local authorities; we assist in repairs of hospitals, roads, reconstruction of parks and housefronts, etc.

Nevertheless, very often we hear groundless demands to raise the salary to 1000 EUR with no respect to competitive positions of business in Ukraine or to the fact, that we purchase more and more imported materials. Everyone knows that we stopped purchasing raw materials from the Companies located at non-controlled territory and moved to other suppliers. Our costs went up, while competitive advantage went down. However, people think that we get more money if we sell at export markets. But it is not true. Good domestic market is always better than export one. But people do not understand it and trust the populist rhetoric of some politicians. It has to be changed.

: How do you estimate investment climate in Ukraine?

P.Kahlon: ArcelorMittal being the world’s leading steel company has a significant presence in the world as well as lots of first-hand experience in knowing what constitutes a favorable investment destination, one designed to attract capital and grow business. For any company considering making investments, there must be a degree of certainty about the environment in which you are investing.  Businesses expand where they believe there is a favorable outlooks for growth or where the see synergies prospective.

I said before, we all evidence Ukraine’s going through a transformation period and can see that definitely a considerable progress has been achieved, although it is a fact that the journey is by no means over. I must say we receive considerable support from the government, who fully understand that foreign investment is critical for Ukraine to boost its economic performance. The support they have provided in many issues has been critical, we very much appreciate their engagement and recognition of the value the country’s steel industry brings to its economy.  It is worth mentioning as well, that to facilitate the investor’s related issues specifically, National Investment Council Office and UkraineInvest Offices were founded by the President of Ukraine and the Prime Minister respectively.

If the country wants to keep attracting investors and become an investment friendly destination, it is critical that a favorable environment is maintained and indeed, there are further improvements that can and need to be made, for example, in the regard to political and financial stability, legislative and judicial systems, property right guarantees, tax and labor codes, machinery and construction industries development etc.

: Why did you become a member of EBA board

P.Kahlon: When it comes to the issues affecting business and finding solutions to them, even big players require sometimes support, partnership or advice. That’s how, apart from being a great networking destination, we found EBA to be one of the biggest and most influential B2B and G2B platforms in Ukraine which facilitates setting meaningful relationships with the government, provides top-notch offices in guiding and protecting the interests of business people in Ukraine, as well as many other business prone opportunities.

Please read: To be successful in Ukraine, you need to forget everything you’ve ever known before entering its market

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