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By John Helmer in Moscow

Steelworkers at the Zlatoust steel mill, which is owned by Vadim Varshavsky’s Estar group, have won an unprecedented claim for wages cut by the company, following a local court ruling and a 5-day hunger strike. It is the first known case of a successful protest action by Russian steelworkers since capacity reductions, furnace shutdowns, and layoffs began last October. Zlatoust produces specialty steels for auto, military, toolmaking and other applications; before the crisis, output was running at about 40,000 tonnes per month.

The steelworkers’ success coincides with an ongoing negotiation between Varshavsky’s managers and the state-owned Vnesheconombank (VEB) to refinance Estar’s loans. Some of these loans support Varshavsky’s acquisitions of Alpha Steel in Wales; and the Istil group, with a mini-mill in Donetsk, Ukraine; and another in construction in the UAE. According to a source at Estar, there have been no layoffs in the UK at the re-named Mir Steel plant.

Local press reports indicate, and Estar sources confirm, that 16 steelworkers from the Zlatoust plant, in the Chelyabinsk region of central Russia, suspended a hunger strike on the weekend, after the Zlatoust mill director confirmed by letter that a claim for an initial Rb6.7 million ($186,111) in back pay for October through December would now be paid. The protest organizer, Alexander Negrebetskikh, was reported as saying: “Estar agreed to pay 30 percent of the sum they owe the workers by March 18. We are suspending the hunger strike, but if they don’t pay [the rermainder of the pay claim] we will resume.” The total backpay claim amounts to almost Rb40 million ($1.1 million, repayable over six months).

An Estar source told CRU Steel News “the delay in wages was not actually a delay. Currently, the amount of orders [for the mill’s products] has declined by fourfold. So Estar has moved its workers to a shorter week of 3 to 4 days. The payment for the idle period was two-thirds of the regular wage. The workers appealed to the local court, and demanded the full wage to be paid. They won the court ruling, so now Estar will compensate this money.” A schedule for repayment has been agreed, starting from March 18.

Estar claims it has not laid off any workers, but instead reduced the work period. However, the company press spokesman added: “Now, with the amount of money available, the company will have to raise the following question at the meeting with Zlatoust workers [scheduled for] March 20: whether to lay off some workers, and keep full salary for the others, or to maintain a lower salary for all the workers of the plant.” The source said that there have been no protests at Estar’s other Russian steelmills against the formula of a shorter working week, plus two-thirds payment for the idle time. In Russia, the Estar group includes six flat steel mills, including a newly opened mini-mill in the Rostov region; two pipemaking mills; a hardware production plant; and a scrap processing plant.

Marat Sofiev, the head of Zlatoust mill union, was not available to comment. He is quoted by local media as saying that additional demands by the mill workers will be discussed at the March 20 meeting.

Just before the strike began, the Estar management announced it would pay a bonus to the 7,000 women employed at its units in Russia, in celebration of the national Women’s Day holiday. The amount was not disclosed.

Varshavsky used to hold steel assets as part of a larger coal group, which he shared with Mikhail Gusteriyev. In 2005 the latter took over the coal units, and Varshavsky formed the Estar holding as a steel-only group. His involvement with Amurmetal, a fareastern steelmaker, is shared with Alexander Shishkin, who is in turn a shareholder in Estar. As a private holding, Estar does not disclose its shareholder structure, nor issue financial reports, except for one unit, the Kuzmin steelmill in Novosibirsk.

The short-term debts of Estar grew rapidly with asset acquisitions and the opening of the Rostov mill; altogether, the debts were estimated at Rb11.7 billion in mid-2008 ($325 million). A refinancing note issue failed in the autumn, and Varshavsky then claimed he would raise the required funds from VEB. Sergei Shapovalov, a vice president of Estar, told CRU Steel News today: “The talks with VEB are continuing. The issue [of the refinancing loan] has not been solved yet.” VEB declined to confirm the status of the loan application.

Another loan application for financing Varshavsky’s buyout of Shishkin at Amurmetal was not approved by Alfa Bank in December; estimates of the sum required range from $950 million to $1.5 billion.

Severstal, the country’s largest steel producer, reported last week that it is planning to cut up to 9,500 jobs in Russia by the end of this quarter. Company controlling shareholder Alexei Mordashov told analysts during a presentation that the number of layoffs would be between 9,000 and 9,500. When asked for clarification, his spokesman Olga Yezhova told CRU Steel News that 9,000 is the number of workers who have been “touched by the crisis.” She claimed that some have been retired on pension; some have been offered retraining; and some have been suspended by furnace shutdowns. She declined to give exact numbers.

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