A much discussed event is the expected entry of Russia to the WTO. What will the implications be for Russia, and how will it affect the operations of the Russian metallurgy market?

Russia's accession to the WTO has long been a hot issue, but we have to admit that it has been overly dramatized. The doubts and reproaches are so exaggerated that you get the impression that it is nothing less than a revolutionary event that will have unforeseeable and unmanageable implications for Russia.

Today as the head of the working Group of Russian Union of Industrialists and Entrepreneurs (RSPP) I can see that the business representatives are ready to discuss WTO entrance not only from the point of view of claiming something from the state, but also considering their own faults and the ways of increasing competitiveness and exchanging experience. The working group is the platform between government and businesses. There are representatives from all sectors and none declared that Russia's entrance to WTO would kill their sector. Many asked for the increase of custom clearance tax in order to protect domestic product.

Indeed, Russian business today does not question whether we should enter WTO or not. I do not think that this step is that revolutionary: it continues the logic of Russia's last ten years' development. And this will mean that the world has finally recognized that Russia has become an integral part of the global economy. We only have to learn how to make use of this membership and world globalization.

In respect of metallurgy, the sector is well developed: there are no real trade barriers and no effective import duties. I do not expect any changes, but exporting may improve.

Severstal is a huge exporter of steel. How do you position yourself in light of the WTO?

Severstal is competitive enough to be able to use its advantages to sell its goods worldwide without disturbing the local markets. We are facing some protectionism and actions against our exports and the WTO accession will give us more rights to debate these issues.

We have achieved a lot on the national and international arena. And we need to enhance it with the instruments that the WTO accession will provide us with. The most important of them are the possibility to defend our interests in the international market with the help off the leverages and mechanisms worked out by WTO long ago. Even now, without being a WTO member Russia acts according to the general rules. Moreover in some sectors we adhere to even more liberal approach than the WTO member-countries.

For example, consider the US steel market issue, which questions their commitment to free trade as such. And the Russian market in this context turned out to be the most vulnerable. For such cases in WTO there is a special authority to settle trade disputes, where one member-country can complain for another country if the latter commits a violation against the charter. Practice shows that this body is very efficient in settling such disputes but Russia unfortunately cannot make advantage of this, whilst it fully observes WTO norms and regulations in the international market. And it is getting more and more serious considering that exporters diversify: it is not only the metallurgical industry; it is also textile, automotive, chemical, agricultural industries as well as fertilizers producers. Exporting limitations can cut dramatically the revenues of the national manufacturers.

In this respect, what are the most interesting markets for Severstal?

Currently and in the future those markets are Europe, South East of Asia and the USA. Moreover, the internal market is strategically important as the most stable, developing, and the one, which has great potential.

Our core market is Russia, and we seek to increase our strength in the domestic market. Our best relationships can be established in the domestic market, and our best customers are domestic customers. The rapid growth of Russia, and the faster growth of its steel market, helps to improve exports in a friendly manner, without disturbing local markets. However, our core market and therefore our main attention is on Russia.

There is increasing competition in the market. With this in mind, how do you manage costs versus goals?

In previous years, Severstal laid the groundwork for its restructuring. Over a number of years Severstal has been a de facto vertically integrated holding company with a complete steel production cycle from raw materials to processing companies. To concentrate on the core steel making business we began spinning off businesses that were not directly related to production of crude steel and rolled products.
Moreover, we have implemented basic management principles in Severstal, through which we have gained greater cost control but it still needs improvement. We are audited by KPMG, and intend to improve our cost controlling system in order to create a more transparent situation. Our main asset is our people, and we will improve the situation through our people; by spending efforts and funds to give people the possibility to grow and develop. This is the basic approach to our people.














 









 

Diversification has been very important for Severstal, and as you indicated this has been a very specific strategy. Could you elaborate on this?

We are making steps in this direction and there are 3 main factors to consider:

1. The management must make steps to implement the best International standards here in Russia
2. Funds must be used to improve facilities
3. There must be a restructuring of cheap prices, which in turn will result in a huge capital gain and the greater wealth of the company
We have chosen several directions that are more convenient for us to move towards, and which, to a certain extent, compliment our current activities. For example, we own UAZ - third largest car manufacturer in Russia. We have created automotive and raw materials divisions within the Severstal group. We are also looking to move the business further upstream through our activities with coal and iron, and in the forestry business with plywood.
Our current plans are for improving the company on all sides of the business. This transformation served to increase production efficiency, increase the competitiveness of our products, and improve management of these businesses. The restructuring will decrease company expenses, help us fully utilize its resources, improve the financial standing of the company, create added value for the shareholders, increase transparency of the Severstal group and attract investment.
Our exports are currently bound by a quota system, and our strategy for expanding abroad involves going into partnership in the international capital markets. However, we have no plans for an IPO yet, as it will need to be strategically planned for when the cycles in the steel industry and capital markets meet.

The sky seems to be the limit for Severstal. What explains this success and what is your vision for the future?

In the environment, where there is no model to behave upon, it appears that common sense, initiative, decisiveness, ability to compromise and some other simple concepts played a major part in Severstal's success story. In this respect, Severstal will continue to strive to increase quality, while decreasing expenses, and will concentrate on higher value added products.
Severstal's task is to meet planned crude steel, cast iron and rolled steel sales, as well as continually ship products of the quality required by our clients.
In the area of finance and economics our main task is to improve our financial performance by tight expenses control and find more efficient work practices that reduce them further.
In the area of sales we have set the task to expand our share of the most profitable markets and clients, to improve our product range, to promote the most promising products - including new products, and prioritise the domestic market.
Steel making remains the principal business of the Severstal group. Consequently, the steel mill will remain the most stable, effective and profitable part of the Severstal group. It also means that the steel mill, which created, tested and implemented many effective management techniques must remain the pioneering business leader, and an example for other companies to follow.
As the sphere of Severstal's activities has grown, the scope of the problems we have to solve has also become bigger. There is no doubt that the foundations we laid give us confidence in the future. We have an understanding of the strategy of our progress, we have management techniques in place, and we have huge human potential. These are our greatest resources.
Our company has tremendous growth potential, and this potential is concentrated in our employees. Severstal is a very good company, a very good place for people to work and an attractive company for its employees. We aim to reach each employee and provide them with the tools to participating in the company's business and influence its performance - as well as individual's earnings.
There are sound policies in the company which are executed effectively. However, as the economy improves we are aware that we are part of something bigger, a global steel market, and so my vision is for us to become more competitive. In the future I foresee a different structure in the world's steel business, and I am certain we will remain competitive in it.

Our readers form the domestic and international business community. What would be your final message to them?

What can Russia contribute into world economy with WTO accession?

So far we have proved that we are a reliable power and natural resources supplier. We may retain this role. There is a pessimistic opinion that this is the most we are capable of, but I am still firmly convinced that Russia can act as high quality commodities producer and supplier. We have sufficient premises for this. First of all it is the human resources - well educated and highly qualified experts. Secondly it is our scientific and technical potential that despite the recent 10 years' decline is still strong. Thirdly, Russia is rich in natural resources, and has favorable climatic conditions. And on top of that the production cost is low, with low cost of manpower and raw materials.

Russia is a good country and a normal country. The Russian people have good basic values appropriate for a market economy. They are able to grow and develop themselves. I would ask that we are treated like normal members of the international business community, with no discrimination or preferences; if this happens, we will be good corporate citizens in the international business community.