Russian metals plants want to run their own show

[Reuter / Mike Collett-White]

MOSCOW, Jan 29 (Reuter) - Russia's huge metals export
industry is to plead for Kremlin handouts, saying state help
could release key plants from the yoke of big trading companies
who use Russian smelters to process raw materials.
Russian metals producers delivered products worth $16
billion to world markets in 1996 -- but they have not got rich
doing so, Vsevolod Generalov, chairman of the Association of
Russian Metal Exporters, told an industry meeting on Wednesday.
The producers take delivery of raw ores and concentrates
from Western commodities suppliers, process them into refined,
value-added metal, and give them back to the trading houses for
export for hard currency.
The arrangement is convenient because it allows Russian
metals enterprises -- which often do not have the cash upfront
for raw materials -- to more or less buy on credit, paying back
the suppliers from dollars earned after exporting.
But there is a price -- Russia's metals factories must give
up part of the export proceeds to the suppliers.
Tolling has given international commodities powerhouses like
Glencore AG of Switzerland and London-based Trans-World Metals,
which supply large amounts of ores and concentrates to Russian
aluminium and copper plants, a lucrative niche.
The scheme has saved Russia's cash-strapped non-ferrous
metals industry from total collapse.
``Working on a tolling basis allows enterprises to maintain
their production potential, frees up cash, provides for
insurance, timely payments for resources used and payments to
the budget,'' Generalov said.
But in what could signal an impending and dramatic change in
policy, Generalov said the trade's practice of using local
production facilities in Russia, known as tolling, may be
numbered.
``Tolling, as a form of credit and widespread phenomenon, is
a temporary phenomenon, and to the extent that we can get out of
economic crisis, its use will be brought to a minimum,'' he said.
Instead, he said, Russian producers should strive to buy
their own raw materials, process them and export directly onto
world markets to raise their own hard currency.
``When enterprises have cash freed up or the possibility of
attracting privileged, competitive credits, then direct exports
will prevail,'' he said.
Generalov is a top executive at Russia's Norilsk Nickel
group, one of the world's largest producers of nickel, a key
component in stainless steel.
Tolling is most dominant in the Russian aluminium industry,
where in 1994-1995 it accounted for 63 to 74 percent of total
primary aluminium output.
Over those years, the last for which data was immediately
available, tolling represented a 32-48 percent slice of Russian
zinc output, around 28 percent of lead and 17-20 percent of tin,
Generalov said.
The association said it would appeal to the government and
to President Boris Yeltsin to give producers the tax and other
breaks they say they need to stand on their own feet.
``The board has decided to set up a working group...to
prepare an appeal...to the president and to the Russian
government to take urgent steps to support metal exports,'' the
statement said.
Russian metals producers face major problems, including high
energy costs and major transportation outlays, industry
representatives told the meeting.
Russia's Siberian aluminium smelters, the world's biggest,
lie thousands of kilometres away from potential markets.
Tolling offers some tax-breaks to producers, once their
output is exported.
But the association said that Moscow taxes Russia's metals
enterprises at nearly twice the rate of other companies, with
value-added and profits taxes two and three times, respectively,
higher than those for other industries.

[Reuter / Mike Collett-White]

MOSCOW, Jan 29 (Reuter) - Russia's huge metals export
industry is to plead for Kremlin handouts, saying state help
could release key plants from the yoke of big trading companies
who use Russian smelters to process raw materials.
Russian metals producers delivered products worth $16
billion to world markets in 1996 -- but they have not got rich
doing so, Vsevolod Generalov, chairman of the Association of
Russian Metal Exporters, told an industry meeting on Wednesday.

Under tolling, Russian metals producers take delivery of raw

ores and concentrates from Western commodities suppliers,
process them into refined, value-added metal, and give them back
to the trading houses for export for hard currency.
The arrangement is convenient because it allows Russian
metals enterprises -- which often do not have the cash upfront
for raw materials -- to more or less buy on credit, paying back
the suppliers from dollars earned after exporting.
But there is a price -- Russia's metals factories must give
up part of the export proceeds to the suppliers.
Tolling has given international commodities powerhouses like
Glencore AG of Switzerland and London-based Trans-World Metals,
which supply large amounts of ores and concentrates to Russian
aluminium and copper plants, a lucrative niche.
The scheme has saved Russia's cash-strapped non-ferrous

metals from total collapse.

``Working on a tolling basis allows enterprises to maintain
their production potential, frees up cash, provides for
insurance, timely payments for resources used and payments to
the budget,'' Generalov said.
But in what could signal an impending and dramatic change in

policy, Generalov said tolling's days in Russia may be numbered.