Transcript of the beginning of the meeting:
Vladimir Putin: Mr Kantor, first of all I'd like to ask you how your company is doing as an example for the state of the entire mineral fertilizer industry as we are coming out of the recession. This is the first point. And, the second, practical point is about relations between mineral fertilizer producers and agricultural companies.
As we've agreed, the Association of Mineral Fertilizer Producers (AMFP) and agricultural companies have signed an agreement on price range that establishes minimum and maximum prices until 2012. On the whole, this agreement has been observed.
As you know, we are in trouble. At least 23 regions have been seriously affected by a climatic problem, and have suffered seriously from a drought.
And so I'd like to ask you and your colleagues from the AMFP to consider a possibility of selling mineral fertilizer to agricultural companies at the lowest possible prices this year.
Let's start with the first question, the one about the industry's performance.
Vyacheslav Kantor: Mr Putin, just in case, I've brought with me this pamphlet, which shows the development of our company in just a few pages. It is also illustrative for the industry as a whole, because Akron is a typical Russian fertilizer producer. It does not produce primary goods, but processed goods. Akron is one of the world's largest producers of NPK [Nitrogen, Phosphorous and Potassium].
You've been to Akron a few times, and so you know what NPK is all about: when one granule contains all types of nutrients.
On the whole, our industry is coming out of the crisis. This primarily means that it is making steady progress in a number of issues.
As before, we have several systemic problems, primarily our relations with suppliers of raw materials. This is the problem that you deal with in every industry on a daily basis. We'd like to find some systemic solution of this issue.
At present the Ministry of Industry, for one, deals with this on a case-to-case basis, reconciling our interests with those of the suppliers of raw materials, but we'd prefer a systemic solution. Monopolists can themselves get rid of monopolists. And we have time and time again offered to establish some new agencies that will work with producers to produce raw materials for the processing industry, which will, in turn, take on the entire responsibility of meeting the needs of the Russian market. This is very important. Let's do like this: you, the producers of raw materials, follow your own rules, deal with exports and domestic supplies, etc. and, if you agree to establish a joint venture with us that will produce raw materials exclusively for mineral fertilizer producers, we will fully supply the Russian countryside with fertilizers.
In response to your second request, I'd like to say that we understand our responsibility to this country's agricultural sector. And we are responsible if something goes wrong, especially in a period of such dramatic climatic events in Russia.
First, as producers of NPK, a highly processed product, under no circumstances will we raise the prices that were established last year. This was our unilateral commitment, or rather proposal, which was accepted by both the Ministry of Agriculture and the Ministry of Industry.
On the other hand, today absolutely all companies want to supply the Russian countryside. I think that soon the countryside will be very competitive, because now many countries that traditionally imported Russian fertilizer have reoriented themselves to the needs of their own national producers. The time when the Russian countryside becomes a very desirable market for competition between is not far off.
Vladimir Putin: Without government intervention?
Vyacheslav Kantor: Exactly. But sometimes we need the government's support to limit our own greed, which is always present in negotiations. Sometimes we need an arbitrator, not an organiser, who will say: ‘Friends, come to an agreement. Don't delay this indefinitely.' That's why we sometimes turn to the government not for money or even organisational help, but for a sort of blessing in socially significant processes.
Vladimir Putin: What you have just told me about the Association's decision not to increase prices from the level of last year is very good and useful news, and agricultural producers will certainly hear about it. But I would like to go back to what I mentioned in the beginning - the industry is gradually recovering from a difficult situation. As early as August or September field preparations for planting winter crops should begin, and then comes spring work in the fields. Please, discuss this issue at your association in light of the current conditions in our agricultural sector, and not as if this were business as usual.
Using your company as an example, how would you say the overall industry and your business are doing? How is business for your company?
Vyacheslav Kantor: I can say that we are on a threshold or either stagnation or development. To put it more clearly, let me say that our company used to enjoy high profits: 50% to 60% in 2008, which was a very high level. This allowed us to take on truly ambitious investment plans. For example, we began constructing our own ore processing plant to become independent of the monopolists. The construction of an ore processing plant at the Oleny Ruchey deposit in the Murmansk Region is also in full swing. We would be glad to invite you, if you have an opportunity, to commission this facility in the first quarter of 2012.
Vladimir Putin: Thank you.
Vyacheslav Kantor: It cost $1 billion, which we set aside from the company's revenues without receiving any financial support from the government. However, we appreciate the government's moral support when you kept on saying that we did the right thing by moving away from monopolies.
Vladimir Putin: That's a large investment.
Vyacheslav Kantor: But our overall investment programme envisages $4 billion. Now let us talk about today, and I believe that what I say is true for the entire sector. Our company's profitability is currently 18%. Half of it goes to servicing our debts and the other half on the development. The shareholders will not tolerate this situation for long.
Vladimir Putin: What was the company's profitability in 2009?
Vyacheslav Kantor: It was slightly higher, 25%, in 2009. It fell, and is now 18%. Meanwhile, not only are shareholders dissatisfied with this situation, but also some regions that expected more tax revenue from us that we were obliged to pay.
However, we are all in the same situation. That's why we sometimes ask our colleague who produce the raw materials for the industry, and I'm referring to the entire industry, to give us long-term contracts with comprehensible pricing so that we can base our long-term development on them. In this case, we would be able to inform our vendors in Russia and abroad in advance about what sort of pricing is to be expected. We then can avoid spot market mechanisms.
Vladimir Putin: What is your prediction of how this situation will develop in the market?
Vyacheslav Kantor: We do not believe that markets will surge. They will slowly recover to pre-2008 growth rates. This year was exceptional in the entire history of the industry.
I believe that we will return to price increases of between 2% to 3% per year.
Vladimir Putin: Everything that you have just said is very important, because we in the government are currently discussing tariffs and other types of regulation for different sectors of the economy. So, this all will be further scrutinised by the Ministry of Economic Development. But this information is vital, and it is good to hear your views on prospects for development.