Director general of the United metallurgical company (UMC) Anatoly Sedykh belongs to those, who at once saw in Russian reforms a unique chance for people with «a business streak». But, unlike many other entrepreneurs of that time, he decided against making trade his business and instead invested money directly in production. And, thus, the first question of his interview with Eurasian Metals:

EM: What brought you to steel industry? Why did you favor this industry above others, which are also profitable: for example, banking, oil business, trade?
– Profit cannot be an end in itself. That is why the profit factor in choosing a field of activities was of no primary importance to me. Of primary importance is to find oneself, to realize the potential granted by destiny. I find it interesting to set a task and accomplish it, to find an optimal way of achieving my goal. And metallurgy is my specialty. I graduated from the Moscow institute of steel & alloys. In 1987, under the existed practice of assigning college graduates, I was sent to the Institute of Steel Industry economics, to the laboratory of new equipment and technologies, where I did research in economics of metallurgical production. Every year we worked out programs of developing steel industry but I could not realize any of my ideas because there was no financing. Probably, some people can «run idle» but it is of no interest to me. To me the result is important. That is why I left the institute in 1989 and together with three partners started setting up our own business.

EM: How UMC’ main assets were acquired? Can, for example, usual terms like merger, takeover, crossholding and so on be used in this case?
– No mergers, no takeovers. There was nothing of this kind. UMC was founded on totally different principles. Things started with a credit that we obtained at Sberbank (Russia’s largest bank to service private persons) and in 1992 we built a shop for producing ferrotitanium. It paid off very quickly. In 1993 we set up Metallinvestbank and I became the chairman of the board doing this job till 1998. When the privatization began, heads of enterprises, which were our bank clients, started visiting us. They offered us the chance to become shareholders of their plants. It was the time, when enterprises were unable to cope with a new reality by themselves: as the administrative system was destroyed, the system of State orders and old economic ties were abolished... The Chusovskoy Iron & Steel Works became our first acquisition in 1997. It was followed by the Vyksa Steel Works and Schelkovsky steel plant..
All in all, UMC incorporated about 20 enterprises and organizations. The Chelyabinsk Tube-Rolling Plant joined UMC in 2001. In form, the affiliation of the Chelyabinsk Plant was rather a merger. We pooled our businesses in order to enhance market bargaining positions of pipe-rolling mills. As a result, UMC’ share of the Russian tube & pipe market today amounts to 35,5% and it accounts for about
80 % of the large-diameter pipe market. On the whole, there was not a single property scandal in UMC. I think that coming to terms is better than fighting. Don’t you agree that it is more beneficial to make investments in reconstruction than to spend money on aggressively buying up shares.

EM: How are the assets of the UMC group valued today?
– The company’s balance sheet assets are valued at $ 900 million. The annual turnover amounts to about $ 1 billion.

EM: UMC incorporates the Vyksa Steel Works and Chelyabinsk Tube-Rolling Plant, Russia’s largest enterprises of the pipe industry. How were your relations with leaders of these mills developing and how are responsibilities distributed today?
– The Vyksa Steel Works was incorporated in UMC in 1999, when it was on the brink of stoppage because of its very difficult problems. The works’ former bosses realized that they could not bring it out of crisis but the fate of the whole city depended on the economic status of the mill. They themselves decided to transfer authority to new managers. That is why the change of top management at the works was absolutely painless. Today the works is a recognized leader of the industry.
As for the Chelyabinsk Tube-Rolling Plant, Andrei Komarov, who headed its board of directors, is a very strong manager. He made a large personal contribution to developing the enterprise. Now Komarov is the chairman of UMC’ board of directors. We are not only equal partners. We are like-minded. We have the same views of business, of the company’s outlook. We divide our powers the following way: I control strategic questions of the company’s development, Komarov takes care of production development and management.

Section of three-layered polyethylene corrosion-resistant coating, one of the new production complexes at the Vyksa Steel Works

EM: As the general director, in fact chief executive officer (CEO), you feel yourself more the company’s manager or its owner? Is there a problem of leadership for the whole structure and for you personally?
– For some time I felt myself as being both. But today the scale of UMC’ activities cannot even be compared with the previous one. The company has reached a different level in its development and the time has come to transfer manager functions to hired professionals preserving the authority to choose strategic goals or, if you wish, the authority to manage the management. It is necessary for the company’s effective development, for securing its leading positions. We have a strong outstanding team, which is capable of accomplishing this task.

EM: What, in your opinion, is the reason for Russia’s pipe-producing enterprises low utilization rate despite the fact that they are oriented on the oil-and-gas complex, the most capacious and profitable segment of the metal product market?
– There are several reasons. First, pipe-producing enterprises were built in the Soviet era marked by gigantomania. Second, a lot of things changed in the years of reforms. Azerbaijan, Turkmenistan, Kazakhstan, large consumers of pipes, which together with Russia comprised one state, are now independent and Russian pipe producers are facing severe competition in these markets. Besides, in those years Ukraine got mills built specifically for the needs of the Russian fuel-and-energy complex. Now these mills have become our rivals, which through dumping prices are retaining a considerable share of the market. And it is no accident that for the last two years shipments of Ukrainian pipes have been limited with special quotas. And there is one more factor: regrouping of players in the European oil market. At present, the share of Russian shipments is much smaller than before. As a result, capacities of pipe-producing mills are three times higher than the needs of oil and gas companies. The latter need no more than 5 million tons of pipes a year but mills’ capacities are enough to annually produce from 12 to 13 million tons.

EM: Currently, activities of UMC are highly diversified. What directions look most promising to you?
– UMC differs from many companies by producing «consumable» materials to secure a normal functioning of the Russian economy. Any industry needs pipes; railroad wheels can be counted as strategic products; if steelmakers do not have ferrovanadium, they will not be able to produce high-quality steel; there can be no cars without springs... All our products are in demand and that is why they have good prospects. But still production of railroad wheels and pipes is undoubtedly the main direction.
The world’s largest wheel-producing complex with the annual capacity of 500,000 wheels has been set up at the Vyksa Steel Works. They are shipped to 15 countries, among buyers are such leading companies as General Electric and Samsung. With the complex’ capacities being utilized at 100 % the high demand for railroad wheels dictates a necessity to expand and upgrade their production. Early in July we signed a contract with the Russian ministry of railways for guaranteed 8-year shipments. The agreement is valued at about $800 million. This provides us with an opportunity to increase investments in wheel production.
As far as the pipe business is concerned, I am sure that our share of both the world and domestic markets will grow. The Alliance-1420 project, which is being implemented now by our company, will give UMC an opportunity to offer the market in 2004 straight-welded pipes with the diameter of 1420 mm and wall thickness of up to 60 mm. As yet, no Russian company produces such pipes.

EM: What companies does UMC regard as its main competitors?
– There are not too many strong players in the Russian tube & pipe market. The Pipe metallurgical company (PMC) incorporating three pipe-producing plants is considered our principal rival by production volumes. As far as large-diameter pipes are concerned, there are only three producers in Russia, which are making them: two of them are incorporated in UMC and the third one, the Volzhsky pipe Plant, belongs to PMC. Its share of the market amounts to 15 % and ours equals 85 %. As for pipes of other kinds there are other competitors: the Seversky and Sinara Tube Plants as well as Taganrog Iron & Steel Works. At present, there are three or four producers in Russia, which can manufacture any product; the competition between them is getting stronger. As far as water & gas-supply pipes are concerned, they are being produced by more than twenty enterprises.
Our main large-diameter pipe competitors abroad are Mannesmann, ILVA, Sumitomo, Nippon Steel.

EM: Are UMC’ leaders planning to undertake any major structural changes in the company in the nearest future? If so, what goals do they have in mind?
– I have already mentioned that the company has reached sufficiently high level in its development and, thus, changes at least in the management structure are really needed. It is particularly important taking into account that we have started up the process of transforming the company into a financial and industrial group. Now we are about to begin restructuring of management and business processes at the pipe-producing complex. Management of enterprises should become more flexible and efficient permitting to quicker react to market demands. This will provide the company with an opportunity to increase its share of the Russian tube & pipe market up to 40 %.

EM: What future do you see for UMC in five, ten, fifteen years?
– I see UMC as a large prosperous structure with a high prestige both in Russia and the world market. Our team is working for exactly such a future. We are making investments in our enterprises and we are already getting results. The Schelkovsky Plant was bankrupt but now it is putting out a unique product – precision steel for picture tubes. A coke-oven battery of the latest type has been put in operation this year at the Gubakhinsky coke Plant. Our expectations have been justified. There is a steady demand for the enterprise’s products, the sales revenue is almost seven times higher than last year. At present there is a modernization underway at the Vyksa Steel Works and Chelyabinsk Tube-Rolling Plant, which opens up new prospects for these enterprises..... We have everything needed for a success and that is a united team, high-class specialists, good plants. I believe in UMC.

EM: Colleagues note your high workload. What is particularly important for you at this stage?
– Strategic questions take most of my time. The way the company is going and the development strategy are my top priorities. Today the capital intensity of the industry is very high and so is the risk to make a mistake. Everything should be carefully weighed and calculated so as to reduce chances of making wrong decisions to a minimum.

EM: Will you, please, tell us briefly about yourself? What do you do apart from business, what interests you, what hobbies have you?
– There is nothing unusual about my biography. I was born in a small city in Russia’s North and went to school there. I graduated from an institute in Moscow and completed a postgraduate study. I have two wonderful boys. And, of course, I devote most of my free time to them. I also love tennis, traveling, books...

EM: It is known that you are getting ready to defend a doctor degree dissertation. Our readers in the West would be curious to find out what prompts Russian businessmen to go in for sciences?
– I have already mentioned that I completed a postgraduate study and worked at a scientific research institute. It is of a double interest to me as a person at the helm of such a powerful company as UMC to combine theory with practice, especially so in these interesting times. It is possible that my doctor degree dissertation will deal with questions of development strategy of Russian metal producing companies under modern conditions.

EM: There are differing opinions in Russia about the results, which the decade of economic reforms brought. From your company’s experience how favorable is today’s environment for entrepreneurship, what mistakes should be avoided so as to secure more tangible results in the economic field and in metals industry particularly?
– I think that in the past ten years our country covered the distance that other countries need fifty years to cover. However, we are still carrying many defects with us from the past. For instance, there is still a system of administrative levers, which by their influence are hampering the development of a healthy competition. But it should be up to the market to influence economic conditions: to choose suppliers, to dictate expediency of raising or reducing production ... The State has a task more important than to lobby for somebody’s private interests or to regulate everything. It should create an infrastructure that will secure normal functioning of business. Protecting interests of Russia’s national business should become the key principle. And if businessmen start feeling protected, they could contribute much more to creating a prosperous State.