Interview Top Interview Ukrainian macroeconomics

The metallurgical industry of Ukraine is the only one in the world which exports 70% of the produced materials

Rostyslav Shurma, SEO of PJSC Zaporizhstal, one of the largest domestic enterprises, shared with the secret of creating a successful team. He talked about the changes that have taken place in the company in recent years, about business  ransparency and its relations with the citizens, about implemented projects, environmental liability and social programs.

: Would you be so kind to tell us about Zaporizhstal?

R. Shurma: Zaporizhstal is one of the largest enterprises in Ukraine, the second largest in the mining and metals sector. Now, the company’s turnover is about $2 billion. We are also one of the largest taxpayers in Ukraine. We annually pay about 4 billion UAH to the State treasury. For example, only the profit tax of UAH 1.3 billion was paid last year. What is it all about? This is about total transparency: we declare everything we earn, everything remains in Ukraine.

There are more than 10 thousand people on the staff. If we take into account all subsidiaries and contractors, we can talk about 30 thousand people. In general, Zaporizhstal and the enterprises of our group represent about 30% of the regional GDP, so we are a real city-forming and even a region-making enterprise.

We probably have invested more than anyone else in the domestic economy. Over the past five years – more than $500 million. It is highly unlikely that you find another company that has invested so much in the development of the Ukrainian economy under the unstable political and economic conditions over the past years. Salary is considered respectable for the domestic industry, it now exceeds 18.000 UAH. We raised wages by 35% in 2018.

: Where are Zaporizhstal products delivered?

R. Shurma: We produce flat products – steel coils. There are hot, cold coils and sheets. Zaporizhstal products are sold to 60 countries. So, unfortunately, we are forced to export more than 70% of our products. I would like to sell everything in the domestic market. After all, what is the consumption of metal? That is primarily investment industries when something is being built. It does not matter buildings, infrastructure, housing and utilities or equipment, they all are metal consumption. And if there are no construction projects, there is no investment – and, consequently, the consumption of metal is low. Therefore, Ukraine probably has a single metallurgical industry in the world, which sells 70% of what it produces for export.

Europe is the key market for us. Over the past five years, we have increased our presence there in several times. So, our share of sales to Europe reached 35% in our portfolio last year. Unfortunately, European politics refer only to the declarations in relations with Ukraine, but actually, their own business interests remain the priority for them. European metallurgists and lobbies worked hard to restrict the import of Ukrainian steel, which resulted in anti-dumping duties. In fact, anti-dumping is a market foreclosure. If you want to sell metal in Europe, pay a tax of 60 euros per ton at a cost of 400 euros. It automatically pushes us out of the market – pure protectionism.

Therefore, it was necessary to significantly reduce the presence in Europe. We reoriented to the Middle East and North Africa, and sometimes we even sell to Far Eastern countries – Thailand, Malaysia and others.

: How long have you been working for the company?

R. Shurma: I have been managing Zaporizhstal for seven years. I used to work at Metinvest before, starting with the position at their Head office. I was the Financial director of an another metallurgical plant, a member of the Supervisory boards of both Ukrainian and European enterprises, a Chairman of the supervisory board of thePromet plant, a member of the directors board of Italian Tatmetallu, a member of the Supervisory board of the plant named after Ilyich. And before Metinvest, I worked at Boston Consulting Group and Procter & Gamble.

: How has the business changed for these seven years?

R. Shurma: The enterprise has changed quite a lot. Firstly, we have substantially increased production volumes. You will find very few enterprises in the country, especially in the heavy industry field, which managed to surpass the best Soviet records. In the metallurgy of the 1970s and 1980s, there was a peak that nobody could achieve. This year, we were able to beat the production record of 1979.

Secondly, we have significantly increased production efficiency.  The company consumed up to 700 million cubic meters of natural gas per year when a new owner of  Zaporizhstal came. The company now consumes only 140 million cubic meters. That is, we reduced the consumption by almost five times. This applies to almost any resource, which has a significant effect on improving efficiency and cost reduction. Efficiency is the key concept in the commodity branch, in which we work.

Among the metallurgical enterprises around the world, only the top 10% are recognized as the most efficient. Zaporizhstal is included in this list. What’s more, we can easily compete with even the most modern factories built in recent decades in Japan, China, and South Korea.

Thirdly, we have invested a lot of own funds in the manufacturing improvements. For example, we invest own funds in three new blast furnaces that meet the latest technological and environmental standards. Complete environmental modernization of the sinter plant with the emissions reduction by dozens of times.  We invested in the construction of a new pickling line, which provides cold rolling preparation. We also have a huge number of projects in the field of ecology at our stage of implementation: the use of secondary resources, processing, etc.

And the fourth – we have greatly expanded our social policy. Every year, with the support of the Works, dozens of unique events are held in the city. This is a semi-marathon run, musical festivals of jazz and Khortytsia-freedom, swimming through the Dnieper and cycling, plus the enormous support for infrastructure projects in Zaporizhia. We spend tens of millions UAH annually on this kind of things. I think the figure has already approached 100 million UAH in these five years.

: Do you come across citizens’ negative feedback concerning emissions?

R. Shurma: This sounds unusual for a person who has nothing to do with the industry, but smoke can be different. There is a steam – this is normal. It is warm air, which condenses and dissolves. However, there is real smoke. We have worked very hard on the harmful smoke in the past five years. Compare the pictures: what sinter plants` chimneys were in 2012 and what they are now. I can say what we did is really a revolution in ecology at our Works. No one in Ukraine can be proud of such radical modernization that we have made. The example can be found only at European factories that have been implementing similar programs for decades.

I can not say that everything has been done, but 80% of what was needed to bring the plant closer to the European standards was done. The remaining 20% ​​will be realized in the coming years.

There is a fact left without attention. In addition to Zaporizhstal, there are about 200 industrial enterprises in the city. Unfortunately, none of them has invested in the Zaporizhian ecology. Meanwhile, there is a huge industrial park on which Zaporizhstal, aluminum and titanium-magnesium integrated plants, Zaporizhkoks, Zaporizhskloflus and ferroalloy smelting plant are located. There are no fences between enterprises, and there are situations when we are accused in what our industrial neighbors have done.

: How do you share information with citizens?

R. Shurma: Our activities are transparent and we are open. Everyone in Zaporozhye can contact us. We talk in detail about our work through the mass media. And the most important: anyone can sign up for an excursion to the plant and see everything with their own eyes. I visited Ukrainian enterprises, many factories in the USA, Europe, Asia, and I can confirm that we are definitely not at the bottom of the leaderboard and everyone in Ukraine is much behind us.

: What problems do large companies face when they work in Ukraine?

R. Shurma: The biggest problem for metallurgists is the work of Ukrzaliznytsia at the moment. It does not have a car park, it does not have locomotives. We are in a situation when we can not transport raw materials or our products, so we experience huge losses.

There are two ways of solving this problem. The first one is to do as with private carriages. There was a shortage of cars, and the market was opened. As the result, the rates grew and investors appeared. Then the cars were bought and the deficit was broken. Finally, the rates have been equalized and the market has become balanced again. The same can be done with the locomotives. This is a right and fundamental way. The second way is to tritely put things in good order, to develop a recovery program for 300 diesel and electric locomotives per year. They can be repaired by Ukrainian repair factories. And during the year or two, the problem will be solved even without purchasing expensive diesel locomotives from General Electric. We are talking about about management effeciency.

The second systemic problem for metallurgy is the value of money that is a derivative of the investment climate. I mean requiring a credit asset at fair value, which is 1-2% per annum for our world competitors, and 4-5% per annum for the competitors in developing countries. And only then, there will be an investment boom in Ukraine. And how do we compete in technology now? We don’t. Hryvnia is 20-22% and dollar is10-12% for the best borrowers at the market.

Unfortunately, there is a total corruption, the lack of clear rules of the game in Ukraine. The protection of property rights does not work. There are endless illegal takeovers. All this is laid down in the interest rates that the company pays. It does not matter whether it is metallurgy, agro-companies, or IT-specialists.

: Does the company feel pressure from the authorities?

R. Shurma: Such things has happened. Both the authorities and marginal structures pressured the company – blocked checkpoints and the plant, extorted money. This is Ukraine and these are country risks. There are no strong institutions. Can you imagine a similar situation in a civilized country? They would immediately send a guard, which would act according to the law. What happened to us? Some people blocked the work of the plant; they demanded compensation in order to leave.

: Did they explain the reasons?

R. Shurma: Bad ecology is the trend, but it turned out that they wanted money from the plant – “give us money and we will leave” – and the sums were huge. We told them: “Come on, we’ll show you how much we have done in terms of ecology.” However, this wasn’t their main interest. Money was the one, a specific amount of money.

: Only a very strong team can increase enterprise efficiency in such a short time. Tell us about the principles of its formation.

R. Shurma: The principle is very simple. Any business is based on two things. Those are people and money. People are always playing the main role. It does not matter whether this is a metallurgical or an IT company. If there is a right team, an appropriate atmosphere, if people believe in a common business, if they are professional, motivated, their eyes glow – the desired goal will be achieved.

Our company is a prime example. It is enough to compare financial results of metallurgical plants inside the country. I mean identical companies built for the same era, with the same technology. Their financial results are fundamentally different. It would seem that this is about equipment, iron, some natural resources, – however, everything depends on people. Therefore, the key to business is to create the right team, motivate it and make sure that everyone truly believes in the common business and works at their full potential. Those are people who can and know what and how to do the best way.

: Can you say that the plant is open to young people?

R. Shurma: Sure, I can. There are many advantages: stability, predictability, prospects. We have a multi-level system of working with young people. Everything starts at school. We organize excursions to the Works for pupils, where they can get acquainted with the profession of a metallurgist, think about their future choice of working place. Then, there are colleges, technical schools, institutions of higher education. Every year, about 1500 pupils and students have practical training here. And this practical training is adequately paid. Young people get acquainted with the production process, and at the same time, they get a possibility to earn their first money. We employ a minimum of 300 graduates annually. Young specialists grow professionally and make a good career.

: Everything is clear with salaries and career, but what about the social package for your employees?

R. Shurma:  We have a fairly substantial social package that involves several points. First of all, it is health care on preferential terms. These are vacations on the Azov coast. We compensate up to 70% of tour price. The second point is health insurance, including visiting the best private clinics. We also provide our employees with reduced fare to the plant from all remote micro-districts of the city, and corporate food at low prices.

We have introduced individual social packages this year. An employee selects the most convenient and necessary benefits for a certain amount of points. For example,  those may be a place in a sports section for a child or a personal car insurance, or a cellphone account refill… Those options will change each year, taking into account what employees want.

: What are the company’s plans for 2019?

R. Shurma: We plan to further increase our efficiency, develop sales in new markets, invest in modernization and development. We have a large-scale investment program – at least a few UAH billion. We plan to start the construction of a modern converter shop. It will be one of the largest investment projects in Ukraine.

Please read: Establishing fair and transparent rules of the game begins with the business itself

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