A giant at the heart of the Central Asia

Mr. N.K. Choudhary

Interview with
Mr. N.K. Choudhary,
General Director of Ispat Karmet
27 November 2002

As a first question, before we get to the history of Ispat Karmet in Kazakhstan, I'd like to know about the evolution of Kazakhstan's economy and the metallurgical industry of Kazakhstan?

Kazakhstan is a very young country which has integrated into the market economy within 10 years. Thanks to President Nazarbayev's committed leadership, Kazakhstan has made a significant progress till today. This success is also based on 2 major factors: natural resources and its people. Kakakhstan has a large population of 15 million people. A large percentage of the total population are highly technically qualified skill workers, especially in the technical field. Kazakhstan has the highest GDP growth among its neighboring countries. In Kazakhstan, the quality of standards of living and the economic situation are improving. The employment ratio is also increasing. On the top of it, foreigners have started to realize that this country has a great potential thanks to its highly qualified workers. An increasing number of investors have started to think on establishing some intermediate production in Kazakhstan. But still the number of foreign companies establishing here is not so high. We decided to invest in Kazakhstan as we had already experience on working in this type of environment and threat is not a constraint for us. Some western and European companies have not come to Kazakhstan yet because they need to be sure that everything is 100% correct.

Could you tell us about the investments of Ispat Karmet? Could you tell us about the historical background of the company?

The L.N.M group came to Kazakhstan at the end of 1995. We have completed 7 years in Kazakhstan. The L.N.M. group has celebrated its 25 years. It is a very young group and none of the groups have grown as fast as the L.N.M group. It started in Indonesia 25 years ago, selling 25 thousand tons of steel and now they are selling 25 million tons of steel. Today we are the second largest steel company in the world. We are the only global steel company. We operate in 11 countries. Our success of the last 7 years is also thanks to the support of the Government of Kazakhstan. Moreover, the people of Kazakhstan appreciate this company very much. Regarding the evolution of the company, when we took over, the plant was producing only 1.9 million tons of steel per year. Today we produce 5 million tons of crude steel and 3.8 million of saleable steel. During soviet times, the market was not a concept to care about as everything was consumed within the Soviet Union. Since the end of the Soviet Union, the first problem we had to solve was the opening of markets which we started to do and today we sell to three big markets: China, Iran and Russia. The material from this plant goes to about 64 countries around the world some as far as American Continent. Since we took over in 1995, we have invested about $800 million in upgrading the plant. It was an enormous challenge and one of the major issues we tackled were environmental concerns while upgrading the plant. We were willing to bring the plant to World standards because the World Bank, EBRD have supported us throughout this time. We are certain that we have met their requirements on the environmental reference. The next stage of upgrading the plant has already started.
There are two angles to this next stage of upgrading. The first one is that competition in the steel industry is increasing as there is a surplus of steel. We have to compete in the international market and technology has become one of the most important concerns for us. Fortunately for us, since we are a multinational company, we do have technology from all the parts of the world, as we have plants in many countries like USA, Mexico and Canada. They have some advantages in technology, but simultaneously, the ex-Soviet plants are very strong in metallurgy with skilled workers in this area. If a father is a metallurgist, then it is likely that his son will also be a metallurgist, which is not a case in other parts of the world today, where young people want to become economists, get their MBA, go to the banking services. But in this part of the world, metallurgy is still a passion for its people. We have one of the largest metallurgical institutes situated in this place, which produces approximately 1000 metallurgists per year. They are all looking forward to work in this plant to get work experience. For example, the head of security had previously worked in the plant. After a few years, he became the head of the department. What I wanted to highlight is that our people are very involved in the process of steel making and normally the work discipline is very high. Today, our plan is to invest about $580 million in the next 5 years. We have a very defined strategy plan, which is to focus on increasing the quality of the steel rather than on the quantity of steel produced.

We think it would be very interesting for our readers to know about the strategy of your company? Could you tell us in detail about your future plans?

Our strategy is to care for our customers. We adopt our customers' requirements for the manufacturing. The market demands quality and timely delivery of what we have to produce. That is why we have to produce with such a strategy where technology becomes very important in order to be competitive. That's one thing. The second one is on the material resource. Fortunately, Kazakhstan is raw material resources based economy. The metal resources are very high in Kazakhstan. We utilize these resources effectively. We try to create an effective manufacturing as part of our strategy. What is our strategy for energy resources? It is a very important part of the steel making process. Coal is our main energy resource. We have our own coal mines which produce an output 10-11 million tons of coal per year. Some amount of this coal is exported. We utilize effectively the available energy resources in order to make our steel most competitive. That is one part of our strategy. The next strategy is upgrading the technology. During soviet times, technology became uncompetitive in some areas. Due to market requirement, we have started to upgrade our technology. Now we are going through the basic steel technology upgrading which involves a large investment and our promoter is willing to invest that kind of money.
What about the evolution of your company? Could you tell us some figures including the destination of your production and where the output goes?

Today our crude steel production is 5 million tons and we are likely to produce 3.8 million tons of finished steel in year 2002. It has doubled since 1995. It was 1.9 million tons by then, and nowadays it is 3.8 million tons. We are not making the long products, basically we produce flat products as they are very high value added products. The largest part of our production goes to China. The second major market is Iran and the third one is Russia. These three countries together cover 80 % of our exports.

Do you have any plans to go to other countries?

One of the next large markets is the European Union. We sell about 100-110 thousand tons per year there. South East Asia is another market which we are trying to develop but because of freight consideration, this is not our natural market.

What about the relations that you have with foreign companies within the local market? What kind of relations do you have with local companies?

We are a big company and we have received financial assistance from International Financial Corporations and European Bank of Reconstruction and Development for the first stage of modernization. What we are doing now is giving a lot of importance to small and media enterprises related to steel industry. It is important to develop local entrepreneurship. Now we are trying to identify the local small-scale industrial enterprises. We already identified about 8-9 companies like that and we are beginning to work with them. They will be producing products that they have identified for our plant, and we will buy those from them. This is another way to develop and contribute to the country's economic growth. It would develop many entrepreneurs and they will be able to manage their activities in a proper way.

Could you tell us about the importance of Ispat Karmet in the region?

Today Ispat Karmet currently employs fifty five thousand people. This is our direct employment, but we also provide with indirect employment by utilizing the rail transportation. We provide nearly 60% of Kazakhstan Temyrzholy loads, which means that the railway depends 60% on Ispat Karmet. Fifty five thousand employment posts plus the indirect employment, means that around 300,000 people depend on Ispat Karmet. Ispat Karmet is supporting the population of Temirtau with communal and tramway services. The 110,000 people that live in Temirtau depend on our plant. The steel industry is one of the most important industries for Kazakhstan and it adds about 3% to its GDP in some form or other.
Recently we have launched a SME resource with IFC where IK holds 51 % share and IFC owning 49 %.

We know that the Karaganda region gets 30% of its tax payments from Ispat Karmet. What about the government support? Is it active?

The steel industry is an old industry. Governments worldwide, even USA have always supported this industry. Several years ago President Nazarbayev was working in this plant. He is a metallurgist who was educated at Karaganda Institute. Mr. Nazarbayev supports us which is very important in order to export steel as domestic market is very very small. There are so many restrictions in other countries for import of steel and without your own government support you cannot do anything because bi-lateral agreements can be negotiated only at Government-to-Government level.

What has been your biggest challenge since 1995 until now? Could you tell us about something that was difficult to achieve?

The biggest challenge has been to develop a market for this plant. Kazakhstan had no export market in 1995. That was our biggest challenge during the last 7 years. Thanks to the synergy with our group and the support of the government, we succeeded. The second challenge is the renovation of the plant and attracting investment into the industry. Investors normally are not eager to invest their money here. Fortunately, our performance has been so good that attracting investments to our industry has been less difficult than expected.

What is your vision of the plant in the next 5-10 years?

In the next five years we would like to be one of the most globally competitive steel plants both in terms of cost and quality. There is no point on adding more and more quantity, but improving quality by meeting our customer requirements. We will basically focus on our natural market, quality requirements and technology.

What is your final message to our readers from Asia, USA, and Europe keeping in mind that they are the top executives of companies?

Kazakhstan is an opportunity for the investor. It has many competitive advantages. I personally feel that this country has huge opportunities. It is time for investors to come to look at the potential of this place and to establish more and more manufacturing facilities. The government is very supportive here. The competitive advantage of Kazakhstan is that you find in the same place committed manpower, abundance of natural resources and government support. Such a combination is very difficult to find. There is a feeling from outside, that CIS countries are not so good. I have been working in many countries and I can say that the situation here is much better. I think that investors should come and see that Kazakhstan is a secure place.
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