Sergei Oposhnyansky
Yevgeny Khokhlov

T

he Verkh-Isetsky plant or VIZ has quite a remarkable history. It was established as far back as 1726. And till today there are wonderful remnants of the industrial architecture of the long-gone epochs on its territory.
The new chapter in the plant’s history began in 1973, when the cold-rolling shop was built. In fact, the whole production cycle of VIZ-Stal is still concentrated within this shop. It starts with making steel coil and winds up with producing it. The total process of creating a new value, which lasts about 1.5 month on average, consists of changing metal’s structure and giving it new properties. There are two types of products only: transformer (anisotropic) and dynamo (isotropic) steel but, all in all, it is about 40 brands of finished steel.
VIZ-Stal has a limited number of business ties within Russia. There is only one supplier of raw materials (ÌÌÊ) and it has just one competitor (NLMK). What is more, their rivalry might be better described as a technical cooperation, not as a struggle to take over the market.


Personnel and personalities

The plant is managed by the international board of directors. And it goes quite well. The general director, Italian-born Massimo Denti, speaks Russian almost without accent, while its executive director Valery Shevelev easily switches to English when talking to his colleagues, Italian Alberto Colombo and American Arthur Koenig. But the main thing is that they all have a common language for working together and there is a formed team, whose members understand each other even from the hint.
Among world producers of transformer steel VIZ-Stal stands out by its size. As Massimo Denti points out, this is one of the largest production sites in the world.
"You have to count the fact that there is no such a big plant in the world. Our equipment is massive. Our pickling line is 300 meters, while a normal pickling line is 100 meters". Precisely because of the plant’s huge size and the production volume, we need people, not because Russians are inefficient as many think, explains the general director.
According to Denti, working in Russia he found out "the incredibly high qualification of employees":
"The level of education of workers is much higher than anywhere in the world. In any case as far as our special production is concerned, the majority of them have a very high qualification and expertise. Sometimes this expertise comes from studies, sometimes from working at the plant for a long time". The general director believes that the production structure, the structure of the personnel and rate of productivity per worker at VIZ-Stal are the same as at any European enterprise of this type. The personnel totals 2,400 workers but some of them are engaged in routine repairs of equipment, services of water and emission treatment systems, ecology programs, etc. Or, in other words, they are doing what is usually being done by servicing organizations at plants in Europe. As Massimo Denti says, this is the only peculiarity of VIZ-Stal.
Duferco’s activity in Russia can be assessed not only as rational but also as respectful as far as local traditions are concerned. As Russian managers see it, the arrival of a foreign owner has not changed the order of things long standing at the enterprise. Just the fact that the managing personnel has remained the same says a lot in this respect. Workers also feel satisfied with the plant owner’s attitude. In the words of Denti, "their salary at VIZ-Stal is higher than the city’s average and it is our intention to support the higher salary every year so as to keep our employees satisfied with their work". Besides, "we try to keep special bonuses for special projects. They cover employees, who have been working at the plant for 10 years, as well as those, who have a special potential. We have a special program to give them credits without interest payments and for a long time. So they can buy apartments, cars and make their life better.
The general director of VIZ-Stal points out with satisfaction that the plant participates in various social communal programs: it provides help to the local hospital, kindergarten, it sponsors sport programs "as much as we can, as much as our profit allows us". "It is our way to be present not only physically. But to be present in the life of the community. We are active in the life of the community already. And, of course, it is our plan to be even more active", says Massimo Denti.

Quantity and quality

Volumes of Duferco’s investments in developing VIZ-Stal has been steadily on the rise. "The investment program that we are to start implementing in 2005 is already the third one in a row", says the enterprise’s executive director Valery Shevelev. He describes the major modernization stages as follows:
The year 2001, "pilot project": the cutting-up line was installed and that made it possible to cut finished coils precisely according to customer’s requirements of length and width. There was nothing unusual about Duferco’s decision to make this operation its first-priority business: the plant started increasing its production and the new installation allowed to put additional volumes of products into another sales niche, thus giving a chance to avoid any head-on competition on the market, which was stable at that time.
From December 2003 through July 2004, the second stage of investments: $5.5 million were invested in expanding the production facilities that let increase production of transformer steel by as much as 20%.
From January to July 2005, the third stage of re-activating and putting in operation equipment that was brought out of action 10 years ago; it will take from $5.5 to $6 million; all in all, investments will total approximately $11 million. The major task is to further raise production volumes.
After that the time will come to start implementing the program targeted at making products of upgraded quality. As Valery Shevelev explains, investments in improving quality were put off for a later stage not because the company does not care too much about this problem but because the current quality level quite satisfactorily meet requirements of the market. By implication, it is proved by the rapid growth of selling the VIZ-Stal products. According to forecasts, such a situation will remain at least till the beginning of the next year.
It is obvious that the Ural plant possesses a high production potential. At present, it makes 180,000 tons of steel a year, while in 1987, the best year in its history, the production volume equaled 330,000 tons (200,000 tons of transformer steel and 130,000 tons of dynamo steel). That is why, getting through the period of the deep slump in production in the mid-1990s (producing just between 45,000 and 50,000 tons a year)VIZ-Stal today looks quite an energetic producer: from 1998 it has been building up production volumes by 25% a year on average.
At the same time managers at VIZ-Stal are careful in assessing the enterprise’s technical potential with respect to its further production growth.
"We do not put forward a task to restore the previous capacities, at least not in the near future", says Valery Shevelev. "This would require unjustifiably high expenses. A part of the equipment has been lost, while inactive technological lines correspond to a progress level reached 30 years ago. It makes no sense whatsoever to regenerate them", he points out.
Shevelev sees it as more rational to work out solutions aimed at developing and perfecting the existing production processes. He believes that after having implemented its 2005 investment program the company will load between 95% and 100% of capacities that can be actually used. As a result, the aggregate production volume will go up to 220,000 tons in 2005 and to 240,000 tons in 2006.

Marketing and sales

In 1999, when Duferco acquired VIZ-Stal, the reputation of Russian electrical steel was quite good, believes Alberto Colombo, the manager at Duferco responsible for sales on international markets. In his opinion, however, this reputation embraced mainly products by NLMK. And as far as VIZ-Stal was concerned, its supplies were prominent because of being unstable.
Managers at the Swiss company radically changed the sales system. They stopped using services of traders and started to sell products through Duferco’s own network. "And this network has over 50 offices around the world", stressed Colombo.
"We are not traders. We cancelled all our relations with traders. And we decided to go directly to users of our products. They produce distribution transformers, generators, power transformers, motors. What we did from the beginning was to work with the largest transformer manufacturers. We are able to offer very stable high quality. And we are able to offer a good logistics system. We are able to fulfill obligations strictly on time. That is what they are looking for. Delivering on time is very important for us. We are able to do this through the networ of our warehouses that we have around the world. We deal with a very sophisticated material that should be handled in a very specific way. It is our main achievement. Now we are able to build a good reputation for Russian steel. We are not considered to be just a reliable Russian producer. We are compared with other international plants", says the manager of Duferco.
Today products of VIZ-Stal have been approved and are being purchased by ABB, Siemens, Schneider, General Electric, Areva. All in all, the mill has 200 active customers all over the world.
Talking about the importance of maintaining strategic partnership with major customers Alberto Colombo mentions difficulties related to it as well. For example, ABB makes an order indicating the date of supplies, which are due, say, in half a year or a year. But it is hard to predict how prices for raw materials will change in the given period. During 2004 a supplier raised prices for hot-rolled coil by 50% and after that this supplier announced a regular increase in prices by 10 %. Thus, the plant was left with too little space for maneuvering so as to implement long-term contracts with fixed prices, while keeping profitability at the same time. Nevertheless, the management at VIZ-Stal handles this problem quite successfully.
At present, the level of prices for products of VIZ-Stal is equal to the world ones. Alberto Colombo mentions this with a note of regret: an important advantage that VIZ-Stal had just 6 years ago was lost. "But we used this temporary advantage productively: we brought the quality in line with world requirements and joined the group of international producers", he states. In his opinion, by its quality electrical steel from Urals is in no way inferior to the European and American ones.
Key markets for VIZ-Stal are Europe, North America and China: each of them accounts for approximately 30 % of export sales, says Colombo. At the same time he believes that it makes no sense to limit activity with priority directions only:
"Everybody now is talking about China as the most powerful market. This country is carrying out a large-scale electrification, implements large projects in the power industry. It needs a lot of transformer steel. In our opinion, the Chinese market will grow by high rates for at least three or four years. But this growth is not endless".
Realizing this the company is advancing its products in other regions as well. Duferco now feels interested in India, Taiwan, Korea, countries of the Middle East. Among promising markets Colombo also mentions South America (Brazil) and Russia, of course.
The Russian market is considered strategically important, although between 75% and 80% of products by VIZ-Stal are exported.
"So far this market is not big. In recent years in Russia there were no significant investments in electrification and distribution of electric power. That us why we expect that soon more and more projects will be started. We are ready and willing to cooperate with Russian power companies and international producers of transformers, who are planning to bring their products to the Russian market. Any increase in demand in Russia will be satisfied by us as a priority subject", notes Colombo.

In Russia and for Russia

As far as the business in Russia is concerned, representatives of Duferco feel optimistic. What is more, it even seemed to us that they feel more confident in success of economic reforms being implemented in the country than the majority of Russians themselves. They believe that very soon the modernization will go beyond individual companies and will embrace the whole industries, including the power industry as well.


The potential capacity of the Russian market of electrical steel is much higher than today’s level of consumption. Until 1992 transformer steel practically was not exported and all products (during peak periods its production volume was up to 400,000 tons a year) were consumed inside the country.
"We understand that Russia and CIS countries will not be able to consume such volumes again. But the volume of 100,000 tons a year seems to be realistic", says executive director at VIZ-Stal Valery Shevelev. He reminds that by now a significant number of transformers have already served their operational time and should be replaced on a mass scale. There is a need for investors but to this end it is necessary to solve the problem with property. Shevelev says that, as a result of reorganizing RAO UES of Russia, which is about to start, generating as well as network companies will be separated from this electric power monopoly and they will become independent market players. Precisely these companies will be consumers of transformers, generators and other equipment, where electrical steel is used. Then, VIZ-Stal will experience a highlight of its activity.
Arthur Koenig, the chairman of the board of directors at VIZ-Stal confirms the interest of Duferco in a long-term activity in Russia. In his words, the company is satisfied with results and that is why it would like to maintain its presence here as well as its functioning. "I should say that we, like any other foreign company, have problems in Russia. But these are common problems for foreigners, who have to adapt themselves to other people’s environment. If we worked in the USA, we for sure would have the same thing", says Koenig.
"We do not consider any other options except the one that provides for intensifying our activity in Russia. And we are not going to sell our enterprise", states Arthur Koenig.
In his opinion, Duferco will continue investing in the plant. But it was of interest to find out, if there are any intentions to expand its business here: to acquire or build a steel-melting complex? Arthur Koenig declined to give a straight answer saying that he knows nothing about such plans.
Valery Shevelev, the executive director, was more open. In his words, the continuous growth of prices for raw materials "gives Duferco an incentive to set its own steel-melting production facilities". But, in Shevelev’s opinion, in this case the matter is of strategic option: either to have an integrated closed cycle or to get more specialized.
Commenting on that Valery Shevelev says: "The first choice leads to independence. However, one should keep in mind that a steel-melting complex will bring problems related to cast iron, scrap, ecology. We will catch up with other steelmakers as regards technologies, qualification and experience. I would prefer, on the contrary, to develop everything that other participants of the steel market cannot do. What is more, there are enough sectors in our basic production, where to invest and from where it is possible to get significant results. Anyway, any decision in this respect will be taken by the company on the basis of economic calculations. It is quite possible that we will move in two directions at the same time: building a steel-melting complex and getting more specialized. Why not?"





Profile:
Massimo Denti
The general director of VIZ-Stal Ltd, 36 years old. Born in northern Italy, left home at the young age, lived and worked in many countries. Started working at Duferco as an ordinary clerk, was a junior trader, in the department of special steels. The 10-year work in a big company gave him indispensable experience and opened up new opportunities. Among other things it brought him to Russia. Represented Duferco in Moscow, in Yekaterinburg. Also represented the company’s interests at enterprises as a member of the board of directors of VIZ JSC and VIZ-Stal.
Sharing his experience of being in Russia Massimo Denti says the following: "I was always sure that I could feel comfortable in any country of the world, if I was satisfied with my job. If you have to work from 8 am till 10 pm, then, there can hardly be a problem of adapting to local conditions. In this sense, it is even better in Urals than, say, at Canary Islands: when there is a frosty weather outside, there is absolutely no desire to go out to get a tan. But as a whole Russia is a good place. Besides, I have gotten the family here, my daughter Martina, who is now 3 years old, was born here. I try to spend all my free time with her. And the family relationship is the most important in my life".


Photo captions
• VIZ JSC plant management building. Erected in the 19th century by architect Voronikhin, the creator of the Kazansky Cathedral in Saint Petersburg, which is considered one of the masterpieces of the Russian classicism.
• VIZ-Stal managers (from left to right): Valery Shevelev, Massimo Denti, Alberto Colombo.
• Duferco’s pilot project at VIZ-Stal: the coil slitting line.