By Aleksandras Budrys
VERKHNAYA SALDA, Russia (Reuters) – Horse-drawn carts still
ply the streets of the Russian town where most of the world’s
titanium is made.
A sprawling, Soviet-built plant has been upgraded to supply
state-of-the-art products to luxury airliners being built by
Boeing and Airbus, but living conditions in this Ural mountains
town of 40,000 people are still basic.
This could be about to change.
The world’s top titanium maker, VSMPO-Avisma, plans to
transform the region into a “Titanium Valley” by building 11
workshops to make titanium products.
The project has been boosted by a joint venture to supply
Boeing with components for its new Dreamliner jets, and by the
Kremlin’s interest in acquiring a stake in VSMPO-Avisma.
Russia’s government, an increasingly confident and wealthy
player on the world stage and keen to consolidate strategic
mineral assets under its control, sees VSMPO-Avisma as an
integral part of a national aerospace and military powerhouse.
State-owned arms trader Rosoboronexport has declared its
intent to acquire at least a blocking stake — 25 percent plus
one share under Russian law — and sources involved in the
talks have said a deal could be struck within a month.
VSMPO-Avisma’s general director Vladislav Tetyukhin and
chairman Vyacheslav Bresht have both said they would be willing
to sell to the state at the right price.
It could be good news for this neglected town, about 1,050
miles east of Moscow, but the Kremlin’s overtures have raised
fears among some analysts that exports from VSMPO-Avisma could
be cut back, especially as Russia develops a civil and military
aerospace industry of its own.
“I foresee problems if the state changes the management,”
said Vladimir Katunin, metals analyst at Aton brokerage.
“I don’t think the new managers will immediately sever
contracts with Boeing and others,” he said. “But there is a
risk these contracts might be revised.”
FEARS UNFOUNDED
Tetyukhin, a 73-year-old metallurgist, says such fears are
unfounded.
“The state understands that we are an international
company, and we have a gigantic responsibility for the world
aircraft sector,” he said.
“They understand what it would mean to disrupt supplies to
Boeing or Airbus. This would be a mighty international scandal
and these people aren’t about to commit suicide.”
Tetyukhin and Bresht, who each have a fortune of $690
million according to Forbes magazine ranking them among
Russia’s top 75 richest men, together own 60 percent of the
company.
“The government has decided the company should get proper
attention,” Tetyukhin said.
“Titanium is used in submarines and in surface vessels, in
aircraft, spaceships and nuclear power stations — all sectors
of the economy that guarantee the survival of the state.”
Until now, however, that strategic importance of titanium
hasn’t been reflected on the streets of Verkhnaya Salda.
“ABSURD SITUATION”
The Titanium Valley project would give VSMPO-Avisma
significant tax breaks that, local officials say, would allow
the company to invest in improving facilities.
“We have either adopted, or are discussing, a series of
laws granting tax breaks to companies, in particular on
property tax,” said local government official Vladimir
Tereshkov.
“We are ready to cut by 50 percent the tax on newly built
assets,” said Tereshkov, chairman of the budget, tax and
finance committee of the lower chamber in the Sverdlovsk
regional legislative assembly.
He said another law recently adopted by the regional
parliament would cut VSMPO-Avisma’s tax on any investments it
makes in its production facilities.
That is welcome news for the company.
“We are able to finance our development, but we are unable
to take responsibility for the whole of the social
infrastructure,” said Tetyukhin.
“It’s an absurd situation. Our taxes have risen several
times. In the capital of the region, Yekaterinburg, new houses
are rising like mushrooms after rain. Here, nothing happens.”
VSMPO started making aluminum parts for aircraft engines
near Moscow in 1933. As Nazi troops pushed toward the Russian
capital in the 1940s, production was moved to Verkhnaya Salda.
By the 1950s, the firm was the monopoly supplier of
titanium to the Soviet aerospace and military industries. But
after the break-up of the Soviet Union, a drastic fall in
military spending and civil aircraft production dragged VSMPO
to the brink of bankruptcy.
Now VSMPO-Avisma — formed when VSMPO merged with the
Avisma titanium sponge and magnesium unit in 2005 — aims to
invest $650 million by 2010 to raise output of titanium
products to 35,900 tonnes, and an overseas share listing is
planned for next year.
(Additional reporting by Natalya Shurmina in Yekaterinburg)
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