"У нас не может быть случайных сделок" - интервью президента Группы "Сумма" Александра Винокурова газете "Коммерсантъ"
Ziyavudin Magomedov's Summa Group is faced with the threat of losing operational control of one of its biggest assets. Transneft, which co-owns the Novorossiysk Commercial Sea Port (NCSP) along with Summa, has supported the transfer of 20% of the port's shares to Rosneft. The president of Summa, ALEKSANDR VINOKUROV, spoke to Kommersant about the company's relationship with Transneft, the situation surrounding NCSP, and the alternatives for developing the group's business.
- Recently, Summa is increasingly being spoken of as a company that is in the market for many different kinds of assets. There's the sense that the group is simply trying to consolidate its position amidst Basic Element, Renova, and other companies. Is there some logic behind this desire to acquire companies from different sectors and is there an understanding of how the group's currently rather disparate collection of assets will develop?
- The precise logic of the company's development strategy always guides our interest in any asset. The foundations of this strategy were established a few years ago, and the plan for implementing the strategy is updated on a regular basis. The last time we did this was in January, after analyzing the macroeconomic cycles, market conditions, and the opportunities for development that they provided. From this we created a document that describes and gives the reasoning behind everything we are planning to do in the next two years.
Summa's strategy clearly lays out four areas for our investment and development: transportation, logistics and infrastructure, engineering and construction, and the oil, gas, and mining industries. There is also one other division, which consists of projects about which we will make decisions on a case-by-case basis. Our fourth division currently includes our telecommunications assets, but we are also looking at the health care and high-tech fields.
We've never made random deals and we never will. I think a lot of that is that people often assume we are in the midst of negotiating or finalizing a deal when that is simply not the case.
- Still, how is Summa positioning itself - as a player with a focus on a specific field within these markets, or as a financial investor that picks up assets for a short period of time in order to increase their capitalization before selling them?
- We see ourselves as a proactive strategist that is involved in the lives of these companies through the boards of directors and the operating committee. We intend to develop our assets in each of the sectors I mentioned earlier. Our strategic goal is to transform them into champions in their industries, in terms of their economic efficiency and administrative mechanisms. We are not a portfolio investor.
- How do you explain the change in the position of your main partner, the state-owned company Transneft, which has asked Prime Minister Vladimir Putin to transfer the government's stake in the Novorossiysk Commercial Sea Port to Rosneft - a move that could in theory deprive Summa of its operational control of the port?
- That control does not belong to Summa alone - it belongs to the joint venture company we own equally with Transneft. Our partnership has evolved constructively for several years now and I'm sure that won't change. However, regarding the issue of 20% of the shares of NCSP, we feel that the most effective way to develop the port group is through a privatization process that allows all interested players to freely bid on shares. Obviously, transferring the government's stake over to a government-owned company is not the privatization that the President and Prime Minister are talking about. And this proposal is raising a lot of questions right now.
Why do we need a greater state presence in a company that already has a "golden share," as well as the state-owned company Transneft as one of its biggest shareholders? What will happen to the shares in NCSP when the privatization of Rosneft begins? There are other oil companies that work with NCSP and are also freight shippers just like Rosneft - how will their interests be protected? As far as Transneft's position, the proper thing to do is to discuss it with the representatives of the company itself.
- Under what conditions would you be willing to take part in the privatization?
- We have no immediate goal of buying the government's share in NCSP, at any price. Everything will depend on when and under what conditions that share will be offered to the market. The uncertain fate of the government's share is the main thing bringing down the company's value. I often hear this directly from investors, although they see great potential in NCSP. Only a month after the strategy to develop the port was submitted, NCSP's shares rose more than 25% at a time when the RTS Index was down 8%. NCSP is obviously, by all current indicators, one of the leaders in the global port industry, and according to its EBITDA, it is the largest port group in Europe. NCSP led the market in 2011, handling 27% more cargo. The company's EBITDA was $550 million, an increase of 32% over 2010, and revenue for the first time exceeded $1 billion, which is 60% more than in 2010. And its debt decreased by $209 million. So naturally there's interest in the company.
- What's happening with Summa's previously announced project to create port terminals in the Russian Far East?
We are finalizing both the detailed design of a grain terminal, as well as the bank negotiations on financing the construction. The terminal will be operating by 2014 and it will have a capacity of 5 million tons per year, which will increase to 10-12 million tons by 2016. The transhipment of grain looks to us like a promising business for the next 20 years. Consumption of food is increasing globally. For example, the demand for meat from the rapidly expanding middle class in China and India is leading to an increase in demand for grain, because it takes six kilograms of grain to produce one kilogram of meat. Although it might seem contradictory, the environmental movement is another factor in this growth. Of the 400 million tons of grain the US produced in 2010, 126 million was used to make fuel ethanol. By 2020, more than 12% of the world' grain production will be used for biofuels. Yet at the same time cities are continuing to grow wildly and there is less and less available land.
Russia, by contrast, has plenty of arable land. In addition, new technology makes it possible to improve crop yields. By the most conservative estimates, Russia's grain exports will double to at least 50 million tons by 2020. Production will increase in Altai and in the Novosibirsk region and other areas of Siberia, despite the huge impact of the cost of rail shipping on the profitability of this business. Exports will travel through the Russian Far East, which for all intents and purposes has no major grain terminals today. At least ten million tons of grain will be exported from this region.
Nor are there a sufficient number of coal terminals today in the Russian Far East. China's rapidly growing energy sector is increasingly dependent on shipments of gas and coal, which is primarily imported from Australia and Indonesia. However I am confident that in the future China will diversify its imports and purchase more coal from Russia. We plan for that terminal to be operating by 2015 with a capacity of about 20 million tons. A transhipment agreement has already been signed with major Russian producers.
- Is Summa's partnership with the Port of Rotterdam just an international joint project to build name recognition or do you see this as something that can bring dividends?
- The Port of Rotterdam is one of the biggest port groups in the world, with a long history and a great deal of expertise. There is clearly a lot of synergy between our two companies - we have similar experience and know how to apply this experience to emerging markets. For that reason we agreed to get together and look at some auspicious projects in places where our combined experience might be in demand, such as in Asia, Latin America, etc. We are considering building a new port in China, for example. We'll make a final decision this summer.
We have a good relationship with the Port of Rotterdam, due at least in part to our project to build terminals there with three million cubic meters of storage capacity (2.1 million cubic meters of oil and 0.9 million cubic meters of petroleum products), to be used for trading Russian oil. Primorsk and Rotterdam will be connected by a "floating pipeline" made up of oil tankers that constantly shuttle between the two ports. The trading platform will be open to everyone. We expect the terminal to be operating by 2015.
- How does the company want to handle the logistics? After all, running a port is very different from being responsible for shipping cargo throughout its itinerary.
- We want to build a company that is able to deliver cargo door to door. I see logistics as a key part of our strategy. Summa has one of the strongest bases of expertise in this area, plus the industry itself is one of the fastest growing. Its volume of trade is developing more rapidly than the country's GDP, but it could be expanding even faster. In order to strengthen our logistics position, we are considering a presence in the railroad industry, dry bulk terminals, and seaport transhipments.
- Will be you take part in the privatization of Sovkomflot?
- We don't know the conditions or prices. But in general we have no current plans to become involved in the shipping business, with the exception of transporting oil from Primorsk to Rotterdam. That's a low-profit, volatile market. It's well known, for example, that in 2010 the 20 biggest carriers in the world earned a total $14 billion, and they lost $15 billion the year before that. The price for hauling some types of freight fell by 90% in 2009 and has still not returned to its pre-crisis level.
- What are you thinking of buying in the railroad industry?
- We're primarily considering platform cars and grain hoppers, but we are also interested in a multipurpose fleet of railroad cars. Obviously the market is consolidating and only two or three major players will remain. We are interested in purchasing a new fleet of railroad cars, as well as taking part in the privatization of Transcontainer, Second Freight Company, and SG-Trans, for example. At the same time we're going to be building dry bulk terminals, which are large warehouse complexes. We are already looking at one such project in southern Moscow. All of this should eventually form a single logistics chain and create powerful synergy with our maritime transhipment projects.
- Are any discussions underway about buying Rusagrotrans, the biggest owner of grain hopper cars?
- That's not under discussion.
- Would you also view the purchase of United Grain Company (OZK) as something that would help further the transportation aspect of your strategy?
- We are interested in the offer of additional shares from OZK - the company would be a good fit with our transportation and logistics expertise. Given this synergy, we have a clear idea of how to make OZK a powerful player in the global market for agricultural commodities.
- And how does your interest in Domodedovo Airport fit into Summa's transportation division, which primarily involves freight shipping?
- At present I can't comment on any issues concerning Domodedovo.
- How will Summa's construction division develop?
- Three of our companies are leaders in their niches in this market. These are Stroinovatsiya, a company with vast experience in construction for the oil and gas industry; GlobalElektroServis, which is the second biggest builder of power facilities; and Intex, which specializes in particularly complex projects and cultural/athletic facilities. It's likely that over time the companies will merge, which will create additional synergy. The result would be a major company with multiple areas of expertise - a world-class EPCM contractor. Its sphere of interests would encompass oil and gas construction, power generation, infrastructure facilities, railroads, and the construction and renovation of cultural and athletic facilities. Over time we will develop our expertise in commercial, residential, and civil construction, although we probably won't venture into real estate development.
- Do you see taking on athletic facilities and cultural monuments as a social obligation or as a business opportunity?
- We are not a charity, but money cannot be the principal goal behind the renovation of Russian treasures like the Bolshoi and Mariinsky Theatres and the Naval Cathedral in Kronstadt. But athletic facilities are business in the purest sense.
- How profitable is the construction business?
- It depends on the project - it's sometimes as much as 10%. As competition increases and the rules become more transparent, we understand that that will decline. It's important to have a significant volume of work, which will ensure that the business is sustainable under any scenario.
- But currently public money makes up the majority of the revenue from your construction division. Do you think you'll be able to make money as you have before with government contracts?
- That's to be expected, given that the state is now one of the main contractors for infrastructure projects. Thus, much of the work for major players in the construction market comes from government contracts. It's mainly public money that stimulates the development of infrastructure everywhere in the world. But of course we are expanding our portfolio of orders from private clients.
- And what's happening with Summa's first railroad project - the construction of the Kyzyl-Kuragino line? Has work begun on the construction of part of this site, as was agreed in the contract with the Russian Federal Agency for Railway Transportation?
- Work is actively underway on the design, and we are completing the feasibility study and selecting contractors.
- How do you explain the fact that in April the Yenisei Industrial Company (EPK) chose the NGO Mostovik to be the general contractor for the second part of this line, although EPK signed a contract with you last December for that section of line?
- It's an enormous project – there is enough work for everyone.
- The area of your business that many people see as the strangest and most unstructured of the group's divisions is mineral mining. How did that evolve and what are Summa's plans in that area? To establish an independent player?
- Currently Summa is focusing on two areas here. The first is the oil and gas sector and the second is mining. Our primary gas asset is YATEK. We like this sector because domestic prices are still three to four times lower than prices on the open markets, although with liberalization that imbalance will be corrected. YATEK's resources are estimated at 340 billion cubic meters. This allows us to plan development both within Yakutia as well as expansion into other regions. At the same time we are looking at oil and gas assets, including some outside of Yakutia.
- Are you specifically negotiating the purchase of other assets?
- We are examining a large number of projects. These include a "greenfield" as well as getting involved in already existing projects.
- Is a partnership with a current player in this industry possible?
- Yes, it's possible, but we don't have any agreements right now.
- What do you ultimately want to build out of YATEK?
- We want to develop the company through organic growth and M&A, before possibly submitting it to an IPO. There is the potential to create yet another major player in that industry in Russia. Especially considering that YATEK is sitting right next to the rapidly developing Asia-Pacific markets, where the consumption of energy resources is bound to grow. Up to 95% of the global growth in energy consumption between now and 2030 will come from emerging markets. And naturally Asia is one of the biggest.
- How long will that take?
- Three to four years.
- What will happen with Summa's oil-trading assets? What's the strategy there?
- We're only looking at oil-trading projects to the extent that they can create synergy with our transportation and logistics businesses.
- How are the negotiations progressing between Summa and the Ministry of Defence regarding the license to mine zinc from the Pavlovsk deposit that borders a military training ground (on Novaya Zemlya on the Barents Sea)?
- We have a geological exploration license and we are in the process of obtaining a mining license. The Pavlovsk deposit is owned by our own First Mining Company, and is one of the largest reserves of zinc and lead. There is increasing demand from China for both these minerals. Annual consumption of zinc there is rising an average of 14% a year and global growth averages 3-4%. But all the major deposits have been greatly depleted, so Pavlovsk looks very promising. We hope that the results of our negotiations will allow us to begin mining this season (work cannot be done there year-round - Kommersant).
- What health care and high-tech projects has Summa chosen for investment?
- We are only starting to look into these areas, but they seem very interesting. We are developing two divisions within health care - pharmaceuticals and medical services. Pharmaceuticals obviously have room to grow in Russia, first of all, since Russians spend about $100 a year on medicine, while in Europe that figure is $400 per person and about $700 in the US. Second, we are 80% dependent on imported drugs, so just as a matter of national security, we need to eventually begin to replace these imported products with Russian versions. As far as medical services, the logic is simple - as the population becomes more prosperous they want higher-quality medical services.
We are still just developing our expertise in the high-tech industry. It's clear that the world is changing and that Russia will modernize and find some way to move away from its dependence on energy production. Technology will play a key role.
- Your telecommunications company, Summa Telecom, is not for sale?
- The company is developing. This year we will have about 250,000 subscribers. We want to build a major regional player in the broadband market, and then think about what to do next - either to enter other regions or to consolidate with someone else and create an even bigger player. But right now our plans are to invest and grow independently.
- Are you interested in the 4G market?
- No, right now we're keeping our focus on triple play service (a business model offering users Internet, cable TV, and telephone services - Kommersant).
- From the examples of other major holding companies that are similarly diversified, we see that it is not always possible for them to effectively manage their own assets. How do you plan to reduce the risks of poor management?
- Those risks can only be avoided by assembling the right team and incorporating the right guidelines for management. Our current team at Summa is quite ambitious and has experience working in major Russian and international companies.
We have built an operational division and we work actively with our assets in all key aspects - in terms of strategy, finances, production, etc. We have a detailed understanding of everything that's going on within the companies. Even before purchasing an asset, we outline a detailed master plan, for 100 days and for three years ahead, and we enter into projects only when we understand what we are going to do and within what time frame. The investment committee takes a similarly meticulous approach. Their meetings include members of Summa's board, experts, and the chairman of the Summa Group's board of directors, Ziyavudin Magomedov.
Interviewed by Aleksandr Panchenko
© Kommersant newspaper, no. 73 (4858), April 24, 2012
- Recently, Summa is increasingly being spoken of as a company that is in the market for many different kinds of assets. There's the sense that the group is simply trying to consolidate its position amidst Basic Element, Renova, and other companies. Is there some logic behind this desire to acquire companies from different sectors and is there an understanding of how the group's currently rather disparate collection of assets will develop?
- The precise logic of the company's development strategy always guides our interest in any asset. The foundations of this strategy were established a few years ago, and the plan for implementing the strategy is updated on a regular basis. The last time we did this was in January, after analyzing the macroeconomic cycles, market conditions, and the opportunities for development that they provided. From this we created a document that describes and gives the reasoning behind everything we are planning to do in the next two years.
Summa's strategy clearly lays out four areas for our investment and development: transportation, logistics and infrastructure, engineering and construction, and the oil, gas, and mining industries. There is also one other division, which consists of projects about which we will make decisions on a case-by-case basis. Our fourth division currently includes our telecommunications assets, but we are also looking at the health care and high-tech fields.
We've never made random deals and we never will. I think a lot of that is that people often assume we are in the midst of negotiating or finalizing a deal when that is simply not the case.
- Still, how is Summa positioning itself - as a player with a focus on a specific field within these markets, or as a financial investor that picks up assets for a short period of time in order to increase their capitalization before selling them?
- We see ourselves as a proactive strategist that is involved in the lives of these companies through the boards of directors and the operating committee. We intend to develop our assets in each of the sectors I mentioned earlier. Our strategic goal is to transform them into champions in their industries, in terms of their economic efficiency and administrative mechanisms. We are not a portfolio investor.
- How do you explain the change in the position of your main partner, the state-owned company Transneft, which has asked Prime Minister Vladimir Putin to transfer the government's stake in the Novorossiysk Commercial Sea Port to Rosneft - a move that could in theory deprive Summa of its operational control of the port?
- That control does not belong to Summa alone - it belongs to the joint venture company we own equally with Transneft. Our partnership has evolved constructively for several years now and I'm sure that won't change. However, regarding the issue of 20% of the shares of NCSP, we feel that the most effective way to develop the port group is through a privatization process that allows all interested players to freely bid on shares. Obviously, transferring the government's stake over to a government-owned company is not the privatization that the President and Prime Minister are talking about. And this proposal is raising a lot of questions right now.
Why do we need a greater state presence in a company that already has a "golden share," as well as the state-owned company Transneft as one of its biggest shareholders? What will happen to the shares in NCSP when the privatization of Rosneft begins? There are other oil companies that work with NCSP and are also freight shippers just like Rosneft - how will their interests be protected? As far as Transneft's position, the proper thing to do is to discuss it with the representatives of the company itself.
- Under what conditions would you be willing to take part in the privatization?
- We have no immediate goal of buying the government's share in NCSP, at any price. Everything will depend on when and under what conditions that share will be offered to the market. The uncertain fate of the government's share is the main thing bringing down the company's value. I often hear this directly from investors, although they see great potential in NCSP. Only a month after the strategy to develop the port was submitted, NCSP's shares rose more than 25% at a time when the RTS Index was down 8%. NCSP is obviously, by all current indicators, one of the leaders in the global port industry, and according to its EBITDA, it is the largest port group in Europe. NCSP led the market in 2011, handling 27% more cargo. The company's EBITDA was $550 million, an increase of 32% over 2010, and revenue for the first time exceeded $1 billion, which is 60% more than in 2010. And its debt decreased by $209 million. So naturally there's interest in the company.
- What's happening with Summa's previously announced project to create port terminals in the Russian Far East?
We are finalizing both the detailed design of a grain terminal, as well as the bank negotiations on financing the construction. The terminal will be operating by 2014 and it will have a capacity of 5 million tons per year, which will increase to 10-12 million tons by 2016. The transhipment of grain looks to us like a promising business for the next 20 years. Consumption of food is increasing globally. For example, the demand for meat from the rapidly expanding middle class in China and India is leading to an increase in demand for grain, because it takes six kilograms of grain to produce one kilogram of meat. Although it might seem contradictory, the environmental movement is another factor in this growth. Of the 400 million tons of grain the US produced in 2010, 126 million was used to make fuel ethanol. By 2020, more than 12% of the world' grain production will be used for biofuels. Yet at the same time cities are continuing to grow wildly and there is less and less available land.
Russia, by contrast, has plenty of arable land. In addition, new technology makes it possible to improve crop yields. By the most conservative estimates, Russia's grain exports will double to at least 50 million tons by 2020. Production will increase in Altai and in the Novosibirsk region and other areas of Siberia, despite the huge impact of the cost of rail shipping on the profitability of this business. Exports will travel through the Russian Far East, which for all intents and purposes has no major grain terminals today. At least ten million tons of grain will be exported from this region.
Nor are there a sufficient number of coal terminals today in the Russian Far East. China's rapidly growing energy sector is increasingly dependent on shipments of gas and coal, which is primarily imported from Australia and Indonesia. However I am confident that in the future China will diversify its imports and purchase more coal from Russia. We plan for that terminal to be operating by 2015 with a capacity of about 20 million tons. A transhipment agreement has already been signed with major Russian producers.
- Is Summa's partnership with the Port of Rotterdam just an international joint project to build name recognition or do you see this as something that can bring dividends?
- The Port of Rotterdam is one of the biggest port groups in the world, with a long history and a great deal of expertise. There is clearly a lot of synergy between our two companies - we have similar experience and know how to apply this experience to emerging markets. For that reason we agreed to get together and look at some auspicious projects in places where our combined experience might be in demand, such as in Asia, Latin America, etc. We are considering building a new port in China, for example. We'll make a final decision this summer.
We have a good relationship with the Port of Rotterdam, due at least in part to our project to build terminals there with three million cubic meters of storage capacity (2.1 million cubic meters of oil and 0.9 million cubic meters of petroleum products), to be used for trading Russian oil. Primorsk and Rotterdam will be connected by a "floating pipeline" made up of oil tankers that constantly shuttle between the two ports. The trading platform will be open to everyone. We expect the terminal to be operating by 2015.
- How does the company want to handle the logistics? After all, running a port is very different from being responsible for shipping cargo throughout its itinerary.
- We want to build a company that is able to deliver cargo door to door. I see logistics as a key part of our strategy. Summa has one of the strongest bases of expertise in this area, plus the industry itself is one of the fastest growing. Its volume of trade is developing more rapidly than the country's GDP, but it could be expanding even faster. In order to strengthen our logistics position, we are considering a presence in the railroad industry, dry bulk terminals, and seaport transhipments.
- Will be you take part in the privatization of Sovkomflot?
- We don't know the conditions or prices. But in general we have no current plans to become involved in the shipping business, with the exception of transporting oil from Primorsk to Rotterdam. That's a low-profit, volatile market. It's well known, for example, that in 2010 the 20 biggest carriers in the world earned a total $14 billion, and they lost $15 billion the year before that. The price for hauling some types of freight fell by 90% in 2009 and has still not returned to its pre-crisis level.
- What are you thinking of buying in the railroad industry?
- We're primarily considering platform cars and grain hoppers, but we are also interested in a multipurpose fleet of railroad cars. Obviously the market is consolidating and only two or three major players will remain. We are interested in purchasing a new fleet of railroad cars, as well as taking part in the privatization of Transcontainer, Second Freight Company, and SG-Trans, for example. At the same time we're going to be building dry bulk terminals, which are large warehouse complexes. We are already looking at one such project in southern Moscow. All of this should eventually form a single logistics chain and create powerful synergy with our maritime transhipment projects.
- Are any discussions underway about buying Rusagrotrans, the biggest owner of grain hopper cars?
- That's not under discussion.
- Would you also view the purchase of United Grain Company (OZK) as something that would help further the transportation aspect of your strategy?
- We are interested in the offer of additional shares from OZK - the company would be a good fit with our transportation and logistics expertise. Given this synergy, we have a clear idea of how to make OZK a powerful player in the global market for agricultural commodities.
- And how does your interest in Domodedovo Airport fit into Summa's transportation division, which primarily involves freight shipping?
- At present I can't comment on any issues concerning Domodedovo.
- How will Summa's construction division develop?
- Three of our companies are leaders in their niches in this market. These are Stroinovatsiya, a company with vast experience in construction for the oil and gas industry; GlobalElektroServis, which is the second biggest builder of power facilities; and Intex, which specializes in particularly complex projects and cultural/athletic facilities. It's likely that over time the companies will merge, which will create additional synergy. The result would be a major company with multiple areas of expertise - a world-class EPCM contractor. Its sphere of interests would encompass oil and gas construction, power generation, infrastructure facilities, railroads, and the construction and renovation of cultural and athletic facilities. Over time we will develop our expertise in commercial, residential, and civil construction, although we probably won't venture into real estate development.
- Do you see taking on athletic facilities and cultural monuments as a social obligation or as a business opportunity?
- We are not a charity, but money cannot be the principal goal behind the renovation of Russian treasures like the Bolshoi and Mariinsky Theatres and the Naval Cathedral in Kronstadt. But athletic facilities are business in the purest sense.
- How profitable is the construction business?
- It depends on the project - it's sometimes as much as 10%. As competition increases and the rules become more transparent, we understand that that will decline. It's important to have a significant volume of work, which will ensure that the business is sustainable under any scenario.
- But currently public money makes up the majority of the revenue from your construction division. Do you think you'll be able to make money as you have before with government contracts?
- That's to be expected, given that the state is now one of the main contractors for infrastructure projects. Thus, much of the work for major players in the construction market comes from government contracts. It's mainly public money that stimulates the development of infrastructure everywhere in the world. But of course we are expanding our portfolio of orders from private clients.
- And what's happening with Summa's first railroad project - the construction of the Kyzyl-Kuragino line? Has work begun on the construction of part of this site, as was agreed in the contract with the Russian Federal Agency for Railway Transportation?
- Work is actively underway on the design, and we are completing the feasibility study and selecting contractors.
- How do you explain the fact that in April the Yenisei Industrial Company (EPK) chose the NGO Mostovik to be the general contractor for the second part of this line, although EPK signed a contract with you last December for that section of line?
- It's an enormous project – there is enough work for everyone.
- The area of your business that many people see as the strangest and most unstructured of the group's divisions is mineral mining. How did that evolve and what are Summa's plans in that area? To establish an independent player?
- Currently Summa is focusing on two areas here. The first is the oil and gas sector and the second is mining. Our primary gas asset is YATEK. We like this sector because domestic prices are still three to four times lower than prices on the open markets, although with liberalization that imbalance will be corrected. YATEK's resources are estimated at 340 billion cubic meters. This allows us to plan development both within Yakutia as well as expansion into other regions. At the same time we are looking at oil and gas assets, including some outside of Yakutia.
- Are you specifically negotiating the purchase of other assets?
- We are examining a large number of projects. These include a "greenfield" as well as getting involved in already existing projects.
- Is a partnership with a current player in this industry possible?
- Yes, it's possible, but we don't have any agreements right now.
- What do you ultimately want to build out of YATEK?
- We want to develop the company through organic growth and M&A, before possibly submitting it to an IPO. There is the potential to create yet another major player in that industry in Russia. Especially considering that YATEK is sitting right next to the rapidly developing Asia-Pacific markets, where the consumption of energy resources is bound to grow. Up to 95% of the global growth in energy consumption between now and 2030 will come from emerging markets. And naturally Asia is one of the biggest.
- How long will that take?
- Three to four years.
- What will happen with Summa's oil-trading assets? What's the strategy there?
- We're only looking at oil-trading projects to the extent that they can create synergy with our transportation and logistics businesses.
- How are the negotiations progressing between Summa and the Ministry of Defence regarding the license to mine zinc from the Pavlovsk deposit that borders a military training ground (on Novaya Zemlya on the Barents Sea)?
- We have a geological exploration license and we are in the process of obtaining a mining license. The Pavlovsk deposit is owned by our own First Mining Company, and is one of the largest reserves of zinc and lead. There is increasing demand from China for both these minerals. Annual consumption of zinc there is rising an average of 14% a year and global growth averages 3-4%. But all the major deposits have been greatly depleted, so Pavlovsk looks very promising. We hope that the results of our negotiations will allow us to begin mining this season (work cannot be done there year-round - Kommersant).
- What health care and high-tech projects has Summa chosen for investment?
- We are only starting to look into these areas, but they seem very interesting. We are developing two divisions within health care - pharmaceuticals and medical services. Pharmaceuticals obviously have room to grow in Russia, first of all, since Russians spend about $100 a year on medicine, while in Europe that figure is $400 per person and about $700 in the US. Second, we are 80% dependent on imported drugs, so just as a matter of national security, we need to eventually begin to replace these imported products with Russian versions. As far as medical services, the logic is simple - as the population becomes more prosperous they want higher-quality medical services.
We are still just developing our expertise in the high-tech industry. It's clear that the world is changing and that Russia will modernize and find some way to move away from its dependence on energy production. Technology will play a key role.
- Your telecommunications company, Summa Telecom, is not for sale?
- The company is developing. This year we will have about 250,000 subscribers. We want to build a major regional player in the broadband market, and then think about what to do next - either to enter other regions or to consolidate with someone else and create an even bigger player. But right now our plans are to invest and grow independently.
- Are you interested in the 4G market?
- No, right now we're keeping our focus on triple play service (a business model offering users Internet, cable TV, and telephone services - Kommersant).
- From the examples of other major holding companies that are similarly diversified, we see that it is not always possible for them to effectively manage their own assets. How do you plan to reduce the risks of poor management?
- Those risks can only be avoided by assembling the right team and incorporating the right guidelines for management. Our current team at Summa is quite ambitious and has experience working in major Russian and international companies.
We have built an operational division and we work actively with our assets in all key aspects - in terms of strategy, finances, production, etc. We have a detailed understanding of everything that's going on within the companies. Even before purchasing an asset, we outline a detailed master plan, for 100 days and for three years ahead, and we enter into projects only when we understand what we are going to do and within what time frame. The investment committee takes a similarly meticulous approach. Their meetings include members of Summa's board, experts, and the chairman of the Summa Group's board of directors, Ziyavudin Magomedov.
Interviewed by Aleksandr Panchenko
© Kommersant newspaper, no. 73 (4858), April 24, 2012