«Наша цель – создавать отраслевых чемпионов», интервью Александра Винокурова, президента группы «Сумма»

Milana Chelpanova, 06/05/2013

To be successful, you cannot grow in every area all at once, says Summa Group President Alexander Vinokurov. In the long term, the company may get out of some businesses, such as gas, mining and telecommunications.

The beginning of the year has brought some concerns to Summa Group. Russia’s Investigative Committee opened a commercial bribery case against Rado Antolovic, the CEO of Novorossiysk Commercial Sea Port (NCSP). The case was opened in the midst of a conflict between the shareholders of the port—Summa and Transneft. Antolovic is still under investigation, and Vinokurov says the conflict between the shareholders has been resolved. Vinokurov played direct role in helping parties come to an agreement. He has experience in such matters. Before joining Summa, he had resolved a conflict between the co-owners of Lenta Company, representing the interests of TPG Capital, one of the owners.

Now Vinokurov has more work to do. Late last year Summa bought a controlling stake in the transport group Fesco from Sergei Generalov and his partners. In an interview with Vedomosti, Vinokurov revealed how Summa managed to snap up Fesco from under the nose of another contender for the company and told about what the shareholders of the NCSP ultimately agreed to, which assets Summa would develop, which assets it plans to sell, and why.

Vedomosti: Is Summa a holding company or a management company?

AV: We’re not a portfolio investor. We see ourselves as a strategist influencing the actions of the companies we own through their boards of directors. Our goal is to transform the companies into industry champions from the point of view of economic efficiency and management mechanisms.

Our job is to help the companies of the group to formulate strategies, build business processes, select key executives and facilitate large deals involving loans and M&A. This assistance will eventually become more methodological. The companies themselves should have the necessary expertise.

We will always have an individual approach to each company. For example, the NCSP and Fesco are companies with billions in sales and solid management teams. Here we exert influence through their boards of directors. In greenfield projects, we get more deeply involved in management.

Vedomosti: Does Summa want to have a majority stake in all of its assets as a matter of principle?

AV: Control is good, but not a dogma. Sometimes, a lot depends on shareholders’ agreements. It’s possible to have a minority stake but more rights than the controlling shareholder. Secondly, it depends on who the partner is or partners are. If a company has a highly diversified investor base, a 30% stake is essentially a controlling stake.

Vedomosti: What is Summa’s growth strategy?

AV: Our strategy has two elements: the industries in which we operate now, and the industries in which we see ourselves in the long run. The basis of our growth will be transportation, logistics, infrastructure development and trading. I see them things as a single business. In fact, we deliver goods from point A to point B. We have competencies in rail and sea freight and transshipping. And trading allows us to generate extra revenue.

Another important element of our strategy is to maintain strong positions in different types of construction: civil, industrial and infrastructure. It is one of our main priorities and is especially important for our shareholders, for good reason. Russia clearly lacks proper infrastructure in both the private and the public sector. Since the early 90’s, average spending on infrastructure construction was 2.3% of GDP. It wasn’t until 2008 that the country managed to reach the world average levels of spending on infrastructure—4.7% of GDP. In 2009 the crisis forced the government to cut spending to 2.8% of GDP. As a result, the situation has grown worse in recent years.

Our country needs a significant increase in infrastructure construction and modernization, and this will require significant investment. Development will proceed rapidly in many areas. For instance, we are far behind most developed countries in

containerization, and the volume of container trade, according to various estimates, is expected to triple by 2020. By eliminating bottlenecks and improving regulation, trade between Europe and Asia via Russia could be quintupled.

Our goal is to have a strong position in industries that are considered critical for Russia and where we believe we have unique expertise.

To be successful, you cannot grow in every area at once. In the long term, we cannot rule out the possibility of exiting some businesses, such as gas, mining and/or telecoms. We have sold off First Mining Company. We still have a polymetallic deposit in Yakutia and a zinc deposit, but we are going to exit these projects too.

Vedomosti: You’ve chosen to focus on transport, infrastructure, logistics and trading. Is there room for growth in these industries?

AV: Of course there is. First of all, we need to grow along with the Russian economy as a whole. We can grow through acquisitions and new projects. I don’t see many assets in the port industry today that are suitable for acquisition, but I see a lot of opportunities for development. Before we buy anything, we want to actively develop the ports where we are already working, expanding existing terminals and building new ones, bringing in new types of cargo and customers, etc. I believe that the prospects for organic growth in our current assets is limitless. There are also new projects that we will be developing: the ports of Vostochny and Zarubino in the Far East. We may buy some small players in the railway sector.

We see Summa Group as an international company domiciled in Russia. We already have several international projects: our subsidiary Shtandart has begun to build an oil terminal in the Port of Rotterdam, and we have entered many Asia-Pacific markets through Fesco.

The bulk of our investment has always been and will remain in Russia. Russia is important to us, and we are constantly expanding here. In early March, we signed a memorandum with the Government of the Republic of Dagestan. We think Dagestan has a lot of underutilized economic potential and holds a lot of promise for investment. We see great opportunities in infrastructure and agriculture, especially rice and corn.

Vedomosti: Are there any plans to invest in other infrastructure in Dagestan, such as Makhachkala Airport?

AV: We are considering various infrastructure projects, many of which appear attractive.

Vedomosti: What other sectors besides transportation and logistics are you planning to enter?

AV: We are interested in high tech. E-commerce, for example. That’s something you cannot ignore nowadays. We might do some small projects in the field of pharmaceuticals. There are several interesting niches that are wide open.

“We see Summa Group as an international company domiciled in Russia.”

The conflict has been resolved

Vedomosti: In February, Transneft publicly stated that it was in a state of conflict with Summa in the NCSP. What was the reason?

AV: Today we believe that the conflict has been resolved. Apart from the need to replace of the Chairman of the Board of Directors of the NCSP, Transneft stated representation in the subsidiaries of the NCSP and the investment in Sheskharis Oil Terminal at the Port of Novorossiysk as the reasons for disagreement. On March 19, the Board of Directors of the NCSP shareholders discussed the financing scheme for the reconstruction of the oil terminal, the recommendations of Transneft, and agreed on a plan of action. The issue of Transneft’s participation on the boards of the subsidiaries was technical in nature. It required changes to the company’s charter. This is being done, but it takes time.

It is natural that shareholders disagree from time to time on what the company should do. But ever since we got involved in NCSP Group, both Transneft and we have always known that we need to work out our differences when they arise. We managed to do this in more than 35 meetings of the Board of Directors held since 2011. We made all of our decisions by consensus. Our development strategy to 2020 was also approved by all the shareholders. The management team is doing a good job and is achieving the goals (set for it by the shareholders in the strategy). In 2012, EBITDA grew by more than 7%, and debt decreased by 10%. Meanwhile, growth in the freight base was 50% above the market. So there is no profound reasons for the conflict.

Vedomosti: What recommendations were put forth concerning the Sheskharis Oil Terminal?

AV: They have been prepared by a working group comprising representatives of Summa and Transneft. This group will oversee the repair work at the terminal from beginning to end. We are doing a renovation project that includes the construction of a second dock that will handle the entire load of Dock No. 1 while it is being rebuilt. The modernization project at the oil terminal began in 2006. A total of $147 million was invested in it by the end of 2012, and this year we are investing $66.5 million in it. Transneft would like to finish the modernization of the oil terminal not in 2015, but rather in 2014, and together we are negotiating how to finance the project. These figures weren’t included in the investment program for the NCSP for 2013.

Vedomosti: Won’t the additional investment in the oil terminal affect the funding of other projects at the NCSP such as the container and grain terminals?

AV: The development strategy for the NCSP was adopted by all the shareholders. The company’s position on the matter is clear: the company must continue to diversify its freight base in order to make it less dependent on disruptions in the global economic environment. Liquid freight currently accounts for more than 80% of traffic, but only 36% of revenue. Last year, the proportion of oil in revenue didn’t increase, while the proportion of grain, fertilizer, container, ferrous metals and iron increased in comparison with 2011.

The main problem that, unfortunately, has not been solved yet, is that the oil terminal is currently being used at only 60% of its capacity. There’s not enough volumes. Neverheless, there are a lot of obvious things that need to be done to maintain the terminal at a high technical level and stay compliant with the current regulations.

Vedomosti: What’s the point of investing in a terminal that’s not being used at full capacity? Do you expect an increase in volumes?

AV: The investment must be justified in terms of cost recovery and efficiency. We have created a working group that is studying the issue carefully.

Vedomosti: Transneft recently reported on its website that it had reached an agreement with Summa to manage the NCSP jointly. What did you agree on?

AV: The company was and still is controlled by all of its shareholders collectively by decisions of the Board of Directors. They are communicated to management and carefully executed. There is a new Chairman of the Board of Directors, but we agreed to rotate the post between Summa and Transneft back in February 2011. We decided on a two-year period, which just ended.

Vedomosti: Is the conflict really over?

AV: Based on the company’s results, none of the shareholders have any reason to be dissatisfied or to be in conflict with any other shareholder.

Vedomosti: Does the criminal case against Rado Antolovic, the former CEO of the NCSP, have anything the do with the conflict?

AV: The case against Rado Antolovic is legal in nature, and I cannot comment on it. He has decided to step down as CEO until the investigation is completed.

Vedomosti: On March 7, Transneft-Service filed a lawsuit in Leningrad region against the Port of Primorsk in connection with a bunker fuel contract. What’s that all about?

AV: They signed an agreement on take-or-pay terms, and Transneft-Service made a prepayment. Then Transneft-Service’s plans changed and they demanded their money back. The port and Transneft-Service disagree on who owes how much to whom, and that’s what the litigation is all about. It’s a typical commercial dispute that companies get into quite often.

Vedomosti: But the Port of Primorsk is a subsidiary of Transneft...

AV: Transneft has a 25% stake in the port, whereas Transneft-Service is a wholly-owned subsidiary. From the economic point of view, it’s logical.

Vedomosti: Is there a shareholders’ agreement between Summa and Transneft on the ownership of Novoport, which is 50.1% owned by the NCSP? Is this stake owned by the joint venture or split and owned by different companies?

AV: There is no such agreement, and we’re not disclosing the details.

Vedomosti: Is Summa planning to sell its stake in Novoport? Are there any plans to split the NCSP’s assets?

AV: No. In the case of the NCSP, we are the buyer, not the seller. The NCSP is a strategic asset for us.

Vedomosti: Which banks are you negotiating with to refinance the NCSP’s $1.9 billion debt, on which substantial payments will begin next year?

AV: The debt burden on the NCSP is quite acceptable. In 2012, the ratio of net debt to EBITDA was 3.4. This figure is fully consistent with the company’s financial covenant obligations. In early 2012 it was 4.3, which means we managed to achieve a significant reduction in the company’s debt burden. Furthermore, as is the case with all our assets, if we can take advantage of favorable market conditions and optimize our debt burden, we always carefully work out possible ways to do it.

Vedomosti: Will Summa participate in the privatization of the NCSP?

AV: We will decide after all the conditions of the sale of the government’s stake have been announced.

Vedomosti: Shtandart TT, your JV with Vitol, which is 75% owned by Summa, has signed with the Port of Rotterdam an agreement under which the port is renting out land for the terminal. Have the parameters of the project to build the oil terminal in the Port of Rotterdam changed?

AV: None of the basic parameters have changed. The terminal will start operating in 2016.

Vedomosti: Where is the financing coming from?

AV: It will be the company’s own funds plus borrowed funds.

Vedomosti: Are you considering prepayment terms for transshipment?

AV: No.

Vedomosti: What forms of cooperation with Transneft on the project to build the terminal in Rotterdam have you considered?

AV: In October 2011, after we won the tender for the construction of the terminal in Rotterdam, Nikolai Tokarev, the chief executive [of Transneft] said that Transneft is interested in the Rotterdam project and is studying the possibility of setting up a joint venture with us for the shipment of Russian oil. We, however, suggested discussing the possibility of setting a through rate for the supply of oil from the place of production in Russia to Rotterdam.

Vedomosti: The joint venture between Summa and Vitol was planning to create a TEW-based trading platform for trading Russian oil. Do they still intend to do this? How will it work?

AV: We believe that the project in Rotterdam will help to strengthen the position of Russian oil in the world. Back in 2005 Vladimir Putin instructed to study ways to reduce the price difference between our Urals oil grade and Brent in order to increase tax revenues. Because of the discount, at least $2 billion of the total value of Russian oil exports is lost annually. Clearly, the task that the president assigned to all of us has become more urgent since then.

The problem of discounting Russian oil requires systemic solutions. There’s no reason for Russian oil to be discounted so heavily against Brent. Many experts believe that Russian oil may become a marker brand when a place to trade it appears in Europe. The fact that Russian oil will always be available in the terminal being built means that European consumers will be able to buy it at any time and in any quantity. The terminal in Rotterdam is the most suitable site for the start of trading in Urals oil. In the vicinity of the Port of Rotterdam there are 10 large refineries with a combined refining capacity of more than 100 million metric tons a year, of which Urals accounts for 32 million. European refineries nowadays prefer to minimize the amount of oil they store in their own tanks. We believe that our terminal will make the Urals brand more attractive to customers in Europe.

Vedomosti: When will the coal terminal at Vostochny Port be launched and what is its capacity?

AV: The capacity is 17 million metric tons of coal and 3 million metric tons of iron ore per year. The commissioning is scheduled for 2015. We’re investing about RUB 10 billion, and the total cost of the project is more than RUB 30 billion. We’re currently doing the design work, and in the fall we expect to obtain the approval from the regulators.

Vedomosti: Has Summa decided to build a terminal in China together with the Port of Rotterdam?

AV: On the initiative of our partners from the Port of Rotterdam we have studied the possibility of building a new port in Nangane, China, which is an industrial area near Tianjin. We sent some of our people there to study technical issues, but their conclusion was not very positive. We decided that it’s better to operate on the Asian markets through Fesco, which has been a successful shipping company in the Asia-Pacific region for a long time. We may eventually revisit the idea of building a terminal.

Vedomosti: Do the Port of Rotterdam and Summa have any other joint projects?

AV: We have a global cooperation agreement and we’re looking at projects in different parts of the world, but it’s too soon to start talking about them.

“Shouldn’t we be considering acquiring all of Fesco?”

Vedomosti: Who was the initiator of the purchase of Fesco—Summa or Sergei Generalov?

AV: We were one of the bidders for Transgarant (a railway operator owned by Fesco -Vedomosti). As we were preparing a proposal on Transgarant, someone had an idea: shouldn’t we be considering acquiring all of Fesco? It was obvious that Fesco logically fits into our strategy.

At that time, preparations for the sale of Transgarant were in full swing, but we suggested our idea to Sergei Generalov anyway. The situation was complicated by the fact that Generalov’s investment consultant in the sale of Transgarant had already chosen a buyer—Neftetransservis—and the deal was about to be closed. We knew we didn’t have much time to think it over. But three days later we managed to come to an agreement in principle.

Vedomosti: What was your impression of Generalov after working with him? You worked with him on the closing of the deal for almost seven months...

AV: Very positive. Sergey is a tough negotiator with a detailed and profound knowledge of the business. It was a pleasure to work with him, and interesting. We got to know each other pretty well during those months and became friends.

Vedomosti: The deal didn’t cover all of Fesco’s fleet. Why not?

AV: There are several reasons for this. First, we have never considered shipping attractive. It’s a low-margin business that depends heavily on market forces. Since Fesco’s strategy focuses primarily on the development of intermodal container transportation, we kept the ships that are used on our permanent international sea lines (China, Korea, Japan) and coastal lines. We sold the ships that were rented out for freight transportation. It was the right thing to do given the prolonged unfavourable situation on the world freight market marked by an excess of container tonnage and a reduction in freight rates. For instance, the price of Baltic Panamax fell from $46,337 per day to $9134. Overall, shipping prices are down 93% since 2008 and 60% since the end of 2011. We kept the container ships that are embedded in our supply chain. Fesco now has 24 vessels and 4 icebreakers.

Vedomosti: With regard to the financing of the deal, initially you negotiated with Sberbank and VTB on securing a loan for the purchase of the asset, but in the end they turned you down and you had to turn to foreign banks. It is believed that Sberbank and VTB turned you down for political reasons. Is that true?

AV: One should ask the banks for their motives, but they were not political. Our competitors actively opposed the deal using every available means. Of course, working with a syndicate of banks that included Goldman Sachs, Raiffeisen and ING was, on the one hand, more complicated, but on the other hand we gained invaluable experience, given the complexity of the deal.

Vedomosti: Fesco recently did a Eurobond issue, saying that the proceeds would go toward refinancing its debt. Did this urgently need to be done?

AV: It wasn’t urgent, and it wouldn’t have been urgent for a few years. But if there are market opportunities to improve the situation, we always explore them. Thanks to the Eurobond issue, Fesco managed to raise much more than was planned— 800 million instead of $600 million, and the issue was oversubscribed by nearly 100%. The fact that the company could do a successful Eurobond issue in the current non-optimal market conditions is evidence that the company and its shareholders have earned the trust of foreign investors, and it was important for us to hear that.

Vedomosti: There have been conflicting reports of how much Summa paid for Generalov’s stake in Fesco and how much 70% of the company cost. Can you divulge the amount?

AV: No.

Vedomosti: When will the offer to Fesco’s minority shareholders be announced?

AV: Within a few months.

Vedomosti: Did East Capital sell its stake?

AV: Yes, but as far as I know, not the whole stake. They remained in the share capital. We see East Capital as a long-term partner.

Vedomosti: Do you have a strategy for Fesco?

AV: Fesco’s main competitive advantage is providing end-to-end containerized service—sea transportation, transshipment and rail. Basically the strategy is to strengthen this and the company’s other advantages. For example, we are considering creating powerful positions in the non-container market segments. And, of course, the company is committed to becoming number one in service quality, which will require reducing transit time, adhering to schedules, having a lot of capacity, shipping frequently and having ports of call over a wide geographical area.

Fesco is already one of Russia’s largest transport and logistics holding companies and a leader on the container shipping market. In the Far Eastern basin, the company has a significant market share when it comes to the transshipment of containers, cars and wheeled vehicles. The group owns Vladivostok Commercial Port, the largest in the Far East. And we’re going to improve its performance. For example, we’ve set a target figure for container transshipment next year at 550,000 TEU compared to 450,000 this year.

In Fesco’s rail business, we’re going to expand grain shipping, as we see great opportunities for synergies within Summa, and container transportation, especially regular container train shipping services. We’re planning to add a route to Yekaterinburg. We’re going to expand the terminal in the port of Vladivostok and develop dry ports in Khabarovsk and Moscow. They are important components of an integrated supply chain.

Vedomosti: Are you planning to buy a rail operator that ships grain, such as Rusagrotrans?

AV: No. Most likely we will buy new cars when they fall in price. I don’t find the gondola and tank market very interesting for us at this time.

Vedomosti: Why isn’t the gondola market interesting? You have a coal terminal in the Far East that will soon be launched.

AV: The gondola market is oversupplied at the moment. The sharp fall in the market that we saw in December will continue.

Vedomosti: What problems is the container business facing?

AV: There are a lot of problems—congestion on the Trans-Siberian Railway, dispatching, customs…Movement on the railways is slow, port infrastructure is underdeveloped and there isn’t enough modern warehouse space where it is needed. In 2012, freight train speed, taking loading and unloading into account, fell from 247 to 219 km per day, or 9.1 km/h. This is the worst figure for the past 15 years. And the Transport Ministry’s forecast is also not optimistic: in 2015 we’ll achieve parity with 2010, and by 2030 the figure will only improve to 13.3 km/h.

Vedomosti: Are you negotiating with RZD to buy or sell a stake in Russkaya Troyka?

AV: No.

Vedomosti: Summa has repeatedly expressed interest in the container rail operator TransContainer, but the asset is not for sale. If you can’t buy the government’s stake in TransContainer, will you sell it?

AV: It depends on when and how the privatization of TransContainer will be carried out. I’m sure it will happen sooner or later. I think the proposal to contribute the stake in TransContainer to a new logistics company involving Russia, Kazakhstan and Belarus isn’t the most fruitful idea. And not just because the stakes of the participants in the authorized capital are not commensurate with their contributions. It’s a well-known fact that the volume of traffic of the Kazakhstan partner is one-tenth of TransContainer. They also have one-sixth as many flatcars and one-twentieth as many containers. The shipping volumes of the Belarusian company Belintertrans are much less than on the Russian market. And in terms of assets they only have 1200 flatcars and a terminal on the border with Poland in Brest. For some reason they’re proposing creating a company on a parity basis without determining or agreeing upon how the partners will compensate one another. But the main thing, in my opinion, is that we must first develop Russia’s transit potential, first of all the Trans-Siberian Railway. Obviously, the new company’s high-priority routes will compete directly with Russia’s. I find it difficult to agree with this logic.

“Before buying anything, we intend to actively develop the ports where we work.

”We’re expecting a record harvest.”

Vedomosti: What’s up with UGC’s strategy? How are you going to change it?

AV: The Board of Directors adopted a new strategy for UGC last December. The company’s main areas of focus as previously formulated by the government remain the same, namely, the company has to facilitate interventions in the grain market, develop infrastructure, including port infrastructure, and focus on processing and trading.

UGC’s main tasks nowadays are to modernize and build new elevators and port capacity, create an effective chain—from buying and processing to storing and transshipping grain—while optimizing the storage conditions. UGC operates 12 grain elevators and 14 processing companies across the country, many of which have long been in need of modernization. So the scale of the work is enormous. We’re also considering new projects such as the construction of a grain terminal at Vostochny Port. We’re considering a project to build a grain terminal at the port of Makhachkala with a capacity of 2-2.5 million metric tons per year.

The way we see it, UGC must become a national champion that consistently promotes the interests of Russian agricultural producers at home and on global markets. There’s no reason why it shouldn’t. The world’s food needs will grow, and this gives our country an unquestionable competitive advantage. In 5-7 years our export capacity may double if the harvest increases to 120-125 million metric tons and domestic consumption remains at 70-75 million tons. In order to create conditions for production growth in the country, we’re going to set up international trading and a sales network while gradually expanding beyond the Middle East and other regions that we have traditionally served.

Vedomosti: What do you think of UGC’s 2012 results?

AV: UGC recently announced its results for 2012 according to Russian Accounting Standards (RAS). Not counting reserves against problematic receivables, net profit for the year was RUB 600 million, which is 30 times more than the company earned in 2011. This is a good result, but this year we set more ambitious goals. And, of course, we’re looking at a variety of new investment projects.

Vedomosti: But trading in 2012 was a disaster for all companies, including UGC...

AV: Not exactly. Of course, we have high expectations for 2013 and are expecting a record harvest. We’re counting on good performance results in the second half of the year.

Vedomosti: According to our information, UGC has problematic receivables of RUB 2 billion. Where did they come from?

AV: Last September, when we closed the deal, receivables stood at RUB 5 billion versus revenue of RUB 21 billion. The company set aside a reserve of RUB 2.3 billion and is now actively working to recover the debt. It has recovered about RUB 900 million so far. If a debtor refuses to accept the claim, UGC turns to the law enforcement authorities and they make a decision.

Vedomosti: UGC announced its intention to invest in a project to develop a dry cargo area in the Port of Taman. Is the project still interesting?

AV: In 2011 UGC signed an agreement with the administration of Krasnodar region and the Ministry of Transport on the construction of a grain terminal. The terms are being discussed and the design phase has begun. Clearly, this project should be implemented as a public-private partnership, but the terms haven’t been worked out.

Vedomosti: What else?

AV: UGC is considering going into grain cultivation. They’re studying the issue and the results of their study will be presented to the board of directors. We’re considering a project involving the cultivation, processing and sale of rice in Dagestan. There is a project with NCSP to build a transshipment terminal for vegetable oil.

Vedomosti: Was it hard to find a new CEO?

AV: The shareholders spent a lot of time deliberating. Sergei [Nedoroslev, Chairman of UGC] and we talked to ten or so worthy candidates and hired some recruitment agencies. Svetlana Savchenko is especially suitable for UGC because she has experience in all the important areas. She has a thorough understanding of food processing, which is especially important for UGC today.

Vedomosti: Are there any plans to buy the stake in UGC that the government still owns?

AV: As far as we know, the government has not officially announced that it is selling its stake or what the terms would be.

Vedomosti: Are you still planning to buy the trader GrainCorp? Are you planning to buy other foreign grain traders? And if so, where would the money come from?

AV: No. It wouldn’t have made sense to try to outbid ADM for it. We’re focused on Russia.

“The scale of the work we’re doing is huge.”

The main task of United Grain Company (UGC) today is to modernize and build new elevators and port capacity while creating an effective chain from purchasing and processing to storage and handling of grain, so as to optimize storage conditions. UGC operates 12 elevators and 14 processing businesses across the country, many of which have long been in need of modernization. So the scale of the work is huge. We are also considering new projects such as the construction of a grain terminal at Vostochny Port. We are considering a project to build a grain terminal in the Port of Makhachkala with a capacity of 2-2.5 million metric tons per year. UGC must become a national champion that consistently promotes the interests of Russian agricultural producers at home and on global markets. The world’s food needs will grow, and this gives our country an unquestionable competitive advantage. In 5-7 years our export capacity may double if the harvest increases to 120-125 million metric tons and domestic consumption remains at 70-75 million tons. In order to create conditions for production growth in the country, we’re going to set up an international trading operation and a sales network while gradually expanding beyond the Middle East and other regions that we have traditionally served... UGC is looking into the possibility of growing grains. We are working on a feasibility study that will be presented to the board of directors. We are considering a project to grow, process and sell rice in Dagestan. There is a project involving the NCSP to build a vegetable oil transshipment terminal.

“Many of our projects are unique.”

Vedomosti: Stroynovatsiya and Intex, Summa’s engineering businesses, are gaining momentum. There was talk of combining them into one big company. Is this question still on the table?

AV: Developing our engineering business is one of our priorities. We’ve already decided to combine them, because it obviously makes economic sense. We’re not ruling out putting up for sale a stake in the united engineering company.
Our engineering companies operate across the country, building oil and gas, electric power and infrastructure facilities as well as railways, roads and bridges. We’re also actively building sporting, cultural and historical sites.
Many of our projects are unique not only in Russia, but in Europe as well. For example, GlobalElektroServis participated in a project to build an electric power ring in St. Petersburg, laying 4 kilometers of cable along the bottom of the Gulf of Finland. One of our companies conducted the second phase of the restoration of the Bolshoi Theatre, and we helped to restore the Naval Cathedral in Kronstadt.

Vedomosti: What do you think of Roszheldor’s RUB 5 billion claim against Stroynovatsiya?

AV: In late 2011 Stroynovatsiya won Roszheldor’s tender for the construction of a 147 kilometre stretch of railway between Kyzyl and Kuragino. Stroynovatsiya signed the agreement, received an advance payment, and started the project. But late last year the government discontinued its funding of the project and suggested terminating the contract. We were okay with that, but refused to return the advance payment as a significant portion of it had already been disbursed. We’re

going to settle the matter using legal means. Now the project itself is being revamped, and Stroynovatsiya is in talks to take part in it.

Vedomosti: Are you going to participate in the design and construction of stadiums for the 2018 World Cup?

AV: Yes. We have the necessary experience for this: our company Intex successfully participated in the design and construction of the stadium in Kazan, which President Putin recently inspected. He praised the work and suggested using the Kazan project as the basis for the construction of stadiums for the World Cup in 2018.

Vedomosti: A court ruled against Summa Telecom’s demand for the 2.5-2.7 GHz spectrum for the construction of a 4G network. What now? Will Summa Telecom continue its bid to enter the 4G market?

AV: We’re going to defend our interests by legal means.

Vedomosti: Is Summa planning to sell its telecoms business? How much is it worth?

AV: We announced earlier that we’re not ruling out that possibility, but it would be premature to talk about when that might be or what it’s worth.

Vedomosti: Recently Summa announced plans to sell its gas business. Are you in talks with potential buyers of Yakutsk Fuel and Energy Company (Yatek)? Which stake is for sale?

AV: We never said that any part of Yatek was for sale. But many industry players and portfolio investors have told us they’re interested in the company. It’s an attractive asset indeed. We have re-evaluated the company’s reserves and confirmed that they’ve increased by 30% to 300 billion cubic meters. We’ve also rebuilt the main production assets and expanded the network of filling stations. Revenue is up by almost a factor of four, and EBITDA by more than a factor of eight since 2007. In the next few years, we expect a significant improvement in the performance indicators and production growth. So we’re not surprised that people are interested in it.

Vedomosti: Some were valuing the entire company at $2-2.5 billion. Which stake is for sale and at what price?

AV: It’s too early to talk about which stake, when and how it will be sold. It will all depend on market conditions and specific proposals.