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By John Helmer in Moscow

Under pressure of regional politicians, prosecutors and courts, Vadim Varshavsky (pictured left), owner of the Estar group of midsized and specialty Russian steelmills, has eliminated his legal liability for another one of his lossmaking, idled units, but the terms remain unclear. Varshavsky, who avoids press contact unless it is advertorial, may count himself unlucky that among the enormously indebted of Russia’s metal magnates, the finger of selective justice is pointing only at him. For the time being.

A spokesman for Varshavsky at Estar headquarters in Moscow told CRU Steel News that Estar has signed what it calls a leasing agreement with Metallservis, a metal trading company owned by Oleg Tyurpenko (pictured right). This, Estar claims, gives the latter the run of the Novosibirsk Metal Works (NMZ) for five years. Metallservis has acquired an option at the end of the lease period to buy the now heavily indebted plant. If Tyurpenko exercises the option, he will be the first Russian steel distributor to attempt to move upstream, and incorporate steelmills in his chain of supply.

The Novosibirk regional government has also signed the agreement with an undertaking to underwrite debt restructuring. As of April 1, NMZ, which is also known in the region as the Kuzmin plant, owes Rb2.2 billion ($71 million). How much state budget money will be channeled through Tyuprenko’s hands to keep the mill in operation has not been announced. What seems certain is that noone wants to channel these funds through Varshavsky.

Metallservis is one of the top-five Russian steel service-centre companies. But unlike its domestic peers Inprom, D&Pos, Comtech, and Steel Industrial Company, it has limited its operations to distribution rather than processing, and concentrated on the central Russian regional supply market. The company claims it is the privatized form of the Moscow metal sales and distribution branch of the 75-year old Soviet organization, Stalsbyt — the Peoples Commissariat for Heavy Industry. Industry reports claim that Metallservis turned over more than Rb19 billion ($640 million) in steel product sales last year, and earned a profit for the year of Rb660.4 million ($21 million). Metallservis claims on its website to be “the largest trade and storage complex in Russia assigned for storing and processing metal products”, but provides no audited financial details or performance reports.
Varshavsky financed his acquisition of steelmills in Russia, the UK, Ukraine, and United Arab Emirates, with heavy borrowing he can no longer service. In addition to Novosibirsk, the Russian units of the Estar group include Zlatoust Metallurgical Works, Nytva Metallurgical Works, Volgograd Small Diameter Pipe Works, Engels Pipe Works, Metallurgical Works «Steel Profile» (also in Novosibirsk), the Estar Trading House, Lomprom Scrap Production Plant, and the Rostov Electrometallurgical Works.

The Estar group is the only Russian steelmaker currently facing court bankruptcy, following the collapse of an attempt by Varshavsky to sell the group, and its liabilities, to Mikhail Gutseriyev’s B&N Bank group. Protests last month by unpaid workers at the idled Zlatoust mill in Chelyabinsk region forced Varshavsky to accept a deal with the Chelyabinsk regional governor, Pyotr Sumin, to maintain trouble-free operation of the production lines at the plant; avoid job cuts and layoffs; meet other debt obligations; and put a stop to offshore trading schemes that were draining the steelmill’s cashflow. In return, Sumin said he would back investment in Zlatoust by the Russpetsstal (RSS), specialty-steel unit of Russian Technologies, a state holding led by Sergei Chemezov, Threatened with criminal prosecution by the governor, Varshavsky has undertaken to negotiate refinancing of Rb11 billion ($355 million) in debts owed by Zlatoust.

In the latest news from Novosibirsk, to the east of Chelyabinsk, prosecutors have been investigating whether the idling of the plant in December, and a subsequent court bankruptcy filing, constituted unlawful evasion of contracts and wage obligations. The leasing arrangement with Metallservis, agreed last week, has been designed, according to the regional government, to revive production, resume sales, and cover costs of purchasing raw materials. This month, it is reported that NMZ will be able to resume production and turn out 15,500 tonnes of steel, which Metallserrvis will distribute and sell. Evraz, which is supplying some of NMZ’s raw materials, says it is owed Rb371 million ($12 million) for past-due deliveries, and until this is paid, there will be no further shipments.

Metallservis told CRU Steel News that the only executive permitted to discuss the deal for NMZ is the financial director, but the company would not identify her surname, and she refused to respond to calls.

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