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"We set the task of doubling the volumes for the next year"

Oleg Misevra on the plans of the Supreme High Command on Sakhalin and for Sakhalin

In conditions of fluctuating prices in the markets, the success of an export company depends not only on the quality of the product, but also on its cost price. Reducing production costs and increasing production volumes is a key objective of the ambitious project of the "Eastern Mining Company" (SHGC) in Sakhalin. The company is ready to spend several hundred million dollars for the construction of an 28-kilometer pipeline, through which coal will be delivered to the reconstructed port. In a detailed and frank interview, the president of the WGC Oleg Misevra tells EastRussia, where you can get a loan at zero percent and a salary of 220 thousand rubles, why Sakhalin bridge, and Shakhtersk - a new port.

"We set the task of doubling the volumes for the next year"
Photo: Tass / VEF Photobank
Special project Coal of the East of Russia

- The degree of implementation of the plans of any exporting company depends, including on the situation on the foreign market. Oleg Anatolievich, in your estimation, will VGK fulfill the planned plans, and will this market help?
- The market so far pleases us. It can not be called high, but it would be wrong to call it low. Let's just say, the level of prices for coal completely suits us. Compared with last year, they grew, probably, at 30%. On the other hand, last year the price essentially "failed" - it approached the critically low. Our main competitors, enterprises from Indonesia, have reduced production volumes by 80 million tons from the level of 2015 year, when the country produced about 380-400 million tons per year. To us, on the contrary, it was possible to increase volumes of both extraction, and deliveries. It is important that we do not have a railway component, which takes a large share in the cost of coal supplied to Asia through the Russian ports of the Far East. The price factor, of course, seriously affects us: the enterprise is developing, it constantly needs investments that are impossible without profit. Now the market "plays out" the fall, the indicators are good, and we are confidently moving forward.
- Can you give a general forecast on the market?
- Forecasts - ungrateful business. And now, unfortunately, a lot for the economy depends on geopolitics. Plus there is a certain "demonization" of coal, although I believe that this is the cheapest source of electricity, probably after the water, and modern cleaning technologies allow minimizing all the consequences for the environment. Yes, Europe cuts coal stations. But the Asian countries are starting to build power plants on coal after a short break. China, of course, suspended construction, but it already has no such need - the economy is growing less rapidly. We sell coal to many Asian countries, including the Philippines, India, Taiwan. Hence, our markets are growing.
- Is your product competitive at the expense of what?
- Prices and quality. For example, in Indonesia coal contains more 1% sulfur, and we have 0,2%. When burned, this is from an environmental point of view the most important factor. Our coal is taken for mixing with other high-sulfur brands. In addition, our coal has low clogging - we put special magnets on the conveyor to catch pollution. And the second part of our advantage is the price. We are much closer than Indonesia to the main Asian markets - Korea, China, Japan, even the Philippines, our coal is cheaper to take.
- So, the targets are achievable?
- If there are no unforeseen events, of course, we will fulfill the plan. We are even sure that we will surpass. On shipment in order to 2017 year, I recall, it costs 4,5 million tons, for extraction - 4 million tons. On shipment all is executed, most likely, we even priristem - up to 5 million tons. Unambiguously we will get 4 million tons and set a horizon of 4,5 million tons. On overburden, the cost price - in all respects we go in plan. You can say that the year the company is going pretty well.
- 10-12 million tons, which the company set as a guide for 2018-2020 years, it turns out, is also not far off?
- When we talked about 10 million tons, we always called 2020. Now the plans are being revised upward: in the future we are aiming for 14 million tons and are thinking about how to increase the volume to 20 million tons per year. I can say for sure that the company will reach the volume of 8 million tons of coal in 2018. This is twice as much as the planned figures for 2017. We set ourselves the task of shipping 8 million tons next year, respectively, and will grow in terms of shipments - by about 80% of the actual expected for this year. The tasks may be ambitious, but they are quite feasible, based on the investments that will be made.

- Speaking about investments, you mean the main conveyor for the delivery of coal and a new marine terminal, or is this the next step? How are these projects moving at all?
- LenmorNIIproekt is going to design the port in the near future. According to the design of the conveyor belt - we decided on the route and soon begin the survey. We expect to receive the finished project by the end of next year. Here we are like pioneers - this is a very complex process, and it is impossible to make a mistake. The construction will take about two years. Hence, the projects will be implemented by the year 2020. By 2021 year, I think, we will already reach the full design capacity, unsolved can remain only some technical points.
- Conveyor will significantly reduce the cost of coal delivery to the port?
- Realizing this project, we put the economy and ecology at the center of the corner. Car transportation of coal is really quite expensive. We pay $ 4-5 per tonne transported. The conveyor will allow to lower the cost price below $ 1. Operational costs for its operation are significantly reduced due to the law on equalization of electricity tariffs in the regions of the Far East, which, as you remember, was accepted on behalf of President Vladimir Putin and has already earned. So, we win $ 3-4 per ton. Based on the volume of traffic in 10 million tons per year, consider yourself: only the conveyor will save at least $ 30 million per year.
- Modernization of the port will also reduce the cost of transshipment?
- This project should help us in general to solve the task of shipping those volumes, of which I have already said - 18-20 million tons of us are looming in the foreseeable future quite clearly. The new port will be built in 500 meters from the old one, which we will continue to use for shipping in 2018-2019 years: through it you can pass up to 10 million tons per year, we have no limitations. The new port, of course, will be significantly lower at the cost of transshipment - through it will be berthing, not raiding.

- Will the old port complex be used after the construction of the new one?
- The existing port, perhaps, will be reoriented for transshipment of oil products, since our need for fuel with development is growing, and the existing delivery scheme does not suit the company. Now the fuel is shipped to Korsakov and from there it is delivered by road, and this is not the most reliable type of transportation in terms of the regularity of supplies. Therefore, we are negotiating with Rosneft to build a tank farm, we are calculating the option of independent construction with the purchase of fuel on the mainland and supplies on our own. Local consumers will only benefit from the appearance of cheap fuel in any case.
- What is interesting for the company about the project of building a bridge to Sakhalin - in terms of the prospects for the development of the port from a specialized coal terminal to something more universal with an increase in the flow of goods that the bridge will give?
- We have a specialized port, it will be built that way - and only for coal shipment, not under reception. But in Russia, large reserves of coal, and the development of its production is highly dependent on the availability of port facilities: the domestic market is saturated, increasing the supply can only be exported. And if there is a bridge crossing, and I have no doubts after Vladimir Putin voiced this idea, on this issue there, our port will be able to enter this chain - and ship coal that will be brought to the island. In the area of ​​large reserves of coal, except ours, no. Therefore, while we are building a port for our needs, although we are ready to accept the products of any subsoil users for transshipment.
- Do you really think that coal from the Kuzbass can be transported through Sakhalin?
- "Narrow neck" for coal miners now - these are the ports. If a bridge appears, it will be reconstructed about 40 km of the old, still Japanese railway from Poronaisk to Uglegorsk, and BAM and Transsib will be made from closed roads open to Sakhalin, then coal from the whole country can be shipped here. Today, the ports are sorely lacking. If the infrastructure issues are resolved, we are ready to increase the port capacity by another 10-15 million tons per year. In general, if the state does not invest in infrastructure, no one else can - it's too expensive. The payback of our project depends on the cost of coal. And the recoupment of the railway crossing and the railway - from the overall development of the economy of Sakhalin. With the bridge, the cost of all goods, which now have to be imported, will immediately decrease. I believe this movement is in the right direction.


- Returning to the projects of the Supreme High Commission. Since the two projects, the conveyor and the port, have not been developed yet, is it early to talk about the magnitude of the capital costs?
- According to our calculations, CAPEX on the pipeline will be within $ 120-200 million. Naturally, this is still a rough estimate: we understand the cost of equipment for the conveyor, but the cost of construction and installation works is not calculated. Without research it can not be determined. Earlier, for example, we intended to choose a route of length 14 km. But now it seems to us that the 28-kilometer route on level ground is the best solution than 14 km through hills. The surveys will show what the final length of the route will be. While we stopped on the technical solution in the form of a belt conveyor, but different equipment manufacturers give different prices. Investments in the port - it's still about $ 250 million.
- There are two questions: where will you attract financing, and who will act as project partners?
- At the Eastern Economic Forum, we signed a memorandum of understanding with the Japanese Marubeni. It's just about building a conveyor and a port. We regard Marubeni as one of the potential counterparties, as the company has experience in projects of this kind. For example, their partner is the company Nippon Conveyor, which already in 1977 built conveyors of length 100 km. As for financing, we are considering a variant with the Japan Bank for International Cooperation (JBIC), which is ready to issue a long-term loan for the deal. There are technical difficulties: JBIC is a state bank that is not very willing to issue loans directly to commercial entities. Therefore, it may be necessary to assist Russian banks or a Japanese company that will lend to JBIC, and then lend us, or act as a construction operator.  
Is this a traditional scheme of work with Japanese partners? FROM Sojitz, for example, the same way?
- Sojitz, in accordance with the agreements reached at the last Eastern Economic Forum, finances the reconstruction of the reloader, without which we will not be able to increase the transshipment volumes. We concluded in April a contract for reconstruction with the manufacturer - the Italian Bedeschi. This will enable us, first, to ship Panamax class vessels, and secondly, to increase the volumes and speed of loading. Next year we plan to reach the norm of the order of 50-60 thousand per day - this is actually a doubling, compared to the current 30-35 thousand per day. With Sojitz and the Sakhalin Oblast Development Corporation, we have built six ships that will handle the delivery of coal from shore to the reloader. There are talks on further investments, including the acquisition of Japanese technology.
- Do you work on a credit scheme?
- Of course. And with the negative rate of the Central Bank of Japan, it is the cheapest money that today is probably in the world. Suppose that when JBIC finances projects for a period of 10 years, the first five years of the loan is set at zero rate, the second five years is 1%. This is almost an interest-free loan compared to the conditions offered in Russia: even 10% for a project with a payback period of five years is 50%. 
- It turns out, with a high probability of a partner, and on the port, and on the pipeline will be one?
- This should be a single mechanism. If it is built by two counterparties, inevitably there will be questions of docking. We plan to make a single complex from the port and conveyor. Moreover, even a new "subsidiary" company has already been registered for this, which will deal with two projects at once - without breaking this chain. The principle is simple: coal must be delivered from the cut to the ship without any intermediate links.

- This new company will apply for the status of a resident of the free port regime, extended to Uglegorsk district, and, accordingly, benefits?
"We are ready to enter the regime - specifically in the construction of the conveyor and the new port, and then their operation." We need these benefits both in the first and in the second stage. Construction is a very large investment in equipment, which will be required, and in imported equipment. The equipment will have to be imported for a simple reason - it is not manufactured in Russia. There is only one analogue of such a berthing port in our country: it is a terminal of Daltransugol in Muchka bay, although there is much shorter than the shoulder to the sea. Now we are negotiating with various Western and Asian companies that are ready to participate in the project. Free port allows to import equipment without customs duties. And most importantly, in the long term, the regime will help us to accumulate funds to pay off the investments due to the profit tax, which for the first five years is zero for the residents.
- Something else power structures of the Far East development help?
- We are grateful to the authorities for the fact that business, which really develops, helps in everything. The plenipotentiary Yuri Trutnev, the Minsk region, headed by Alexander Galushka, the governor Oleg Kozhemyako - all help. We also try to develop. For example, we expect in the near future, perhaps by the beginning of next year, ahead of schedule to repay the loan, which we, under preferential 5% per annum, issued with the support of the authorities "Sakhalin Region Development Corporation". We took only 1 billion rubles and understand that we are ready to return this money so that they can be used somewhere in another part of the region, develop some other business. And we can work with commercial banks.
- Why did you become a member of the public council at the Ministry of Eastern and Eastern Development?
- As the owner of the enterprise, I am very deeply immersed in the project. I well understand all the hardships of doing business in the Far East, since the problems in Sakhalin and Vladivostok are about the same, and we have projects in the Magadan region. Therefore, I can provide assistance in the interaction between business and government - just from the point of view of the development of various business projects. I am ready to speak with authority on behalf of the business, to say what is necessary and to prove my position. After all, what are benefits? Sometimes, having a privilege, it is sometimes impossible to apply it, until you correct the mechanism of its application.
- Do you have any examples of what you managed to bring to power?
- There are examples when it turns out to build a dialogue. For example, the problems of railroad delivery of coal to HGCs do not apply - we, as you remember, do not have this component. But for Sakhalin as a whole there is a problem. Here is an example: the turnover of the car at a distance of 300 km is 8 days. I say: "Listen, you can drive faster on horses than by rail." How can eight days go back and forth 300 km? They explain to me: "Our arrows are not automated, dispatchers ...". Yes, all these are complexities, but this must be done!
"Did the discussion lead to something?"
- We brought this issue to the meeting. The governor showed interest, invited railway workers, coal miners, officials. Everyone in this conversation participated, tried to find a solution. A solution, whether good or bad, is found, work on it. The second example is the granting of the status of a free port to the Uglegorsk District. Of course, we also participated in this, explained Minvostokrazvitiya, argued that it was necessary, helped with some ideas.
- Of course, because this is primarily your project?
- You know, they do not believe me, but it's not a fact that all our enterprises will get preferential treatment. But those companies that come to the project, can get benefits - these are our partners who supply us with machinery, carry out road transport. All of them want to become residents. So it is quite possible that the WGC projects will be only a modest part of the free port.

- You mentioned the negotiations on the supply of Japanese equipment for the project, and recently the delegation led by the State Secretary of the Union State, Grigori Rapota, showed you BelAZ. Have you agreed on something?
- Belarusian technology is no worse than the technique of Japanese or German production, which we use. And there is a significant plus - it is much cheaper. Both Japanese and Belarusian manufacturers, for example, use the same engines. Other components also often coincide. Therefore, the comparison of price plus quality always plays towards the Belarusians.
- The second side of the use of technology is its productivity, and it depends heavily on people. At you, passed such information, it is possible after training of the personnel to raise productivity twice. Due to what?
- When we just started importing large imported equipment, people were not ready for it: they used to work on weaker, unproductive equipment. At first we thought: what difference does it make on which excavator to work, two-cube or 23-cube? Levers - the same, plus or minus. We thought the transition would be painless. It turned out to be painful: they moved - and could not. First of all, it was necessary to change the mentality: it is a different scale, different approaches. In the second - the approach to learning, because we all had self-taught. Now we, for example, purchased simulators, we invite instructors who are trained to work on technology. Another part of the task is to make sure that people not only show results, but take care of technology.
- What kind of motivation is there?
- Still, probably, the receipt of income. Creation of conditions when the employee, properly operating machinery, will receive decent money. After all, now for working on modern technology, good conditions have been created. I'm obliged to be on the cut, talk to the drivers, climb the BelAZ, into the excavator's cab. They have perfect conditions, they sit in slippers all there: comfortable, warm, air-conditioned, music, anything, anything. These conditions created the manufacturer. Our task now is to teach them how to exploit it properly and pay it with dignity.
- Worthy - this is how much?
- We encourage people to work on the result. For example, drivers of heavy vehicles receive from 120 to 180 thousand rubles per month. Drivers of excavators - up to 220 thousand. This is a decent salary. Many people come to us, say, from Siberia, and I ask them a question: "How much have you come?" They say: "Listen, if you will pay this, forever." Of course, maybe some social conditions have not yet been created on Sakhalin. But the region is moving towards this. And the same infrastructure projects - this is all the development, including the social sphere in the future.
- Do you only Russian cadres work?
- About 90% - this is the Russians. Generally bring the shots - it's not cheap, we also bear the costs of moving, we pay for accommodation. And many newcomers are already beginning to move here with families: they buy housing, take it out for rent. We are now thinking, maybe we will build our own housing, so that people stay. We are retraining a lot of local cadres - from the closed mine, and from other enterprises and regions of Sakhalin. At the first stage, we inevitably more engaged in technology. And now we are engaged in very tight staff and, I hope that it gives its fruits.
- In general, the company is staffed?
- If earlier we took everybody, then today, of course, we have become more picky. We are fully staffed by major professions. And we already have the opportunity to take the best of the best. And for those who are worse, we say: “You are already lagging behind, come on, or catch up, or we will have to say goodbye to you.” We can choose, because we already have a large enterprise. On Sakhalin, all coal mining companies are usually small. And our mine is already becoming a giant, and when it approaches the volume of 10 million tons per year, it will become one of the largest sections, which can be counted on the fingers of the country.
- You already have a whole mono-city. Is there any additional social burden for the company?
- The main thing that we do is provide jobs. Second, we pay taxes. There are examples of Soviet times, when the enterprise had a collective farm, a kindergarten, a sanatorium. We know what this led to with the onset of a market economy, and we do not want to attack the same rake. On the other hand, we help athletes, built a church, gave a big discount on coal to the residents of the district. I will not say that this is significant in the scale of even the municipality. For the region, the most important is that we are, and that we pay taxes. I think this is the most important thing that we have to deal with - to develop.
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