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By John Helmer in Moscow

Russia’s industrial and mining sectors are so thoroughly dominated by the handful of proprietors known as oligarchs, the only time that federal government regulators dare to interfere with their operations by attempting to enforce the law is when the regulators get their cue from a senior government official. And the only time that happens is when the official decides it is time to transfer ownership of an asset, or put the oligarch on notice that his franchise is about to cost him more — much more.

Responding to what it says was a recent individual complaint, Russia’s federal environmental safeguards regulator, Rosprirodnadzor (RPN), announced yesterday that it has started an “off-schedule inspection” of Severstal’s lead Russian mill at Cherepovets.Monday’s official notice by the regulator says the inspection will take eight days, and be focused on “compliance with the environmental protection legislation of the Russian Federation in the field of protection of atmospheric air, treatment of waste of production and consumption, protection of water objects, geological studies, rational usage and protection of mineral resources.” The announcement also claims that the check was started on “a complaint of a Cherepovets citizen… he specified that OAO Severstal dumps chemicals on the soil and breaks the rules of waste storage.”

The Cherepovets mill is where Alexei Mordashov, a native of the town, began the creation of the Severstal group. The mill dates from 1955; Mordashov’s takeover from 1993. After several years of piling up debt for premium-priced, but lossmaking American steelmills, Mordashov is now obliged to recognize that Cherepovets is one of the cost-efficient units of the entire group, and one of the few sources of profit currently working for Mordashov.

It is almost unprecedented for RPN to move in this way against a major steel group, and the agency spokesman did not respond to requests to clarify the nature of the complaint, and the identity of the reported complainant. Severstal did not respond to calls for comment. Russia’s third-ranked steelmaker, Severstal claims on its website that “we are committed to sustained development across the economic, ecological and social aspects of our work.” Severstal also reports that last year “more than 250 different safety actions have been implemented at Cherepovets Metallurgical Works (CherMK) to provide further improvement and support of healthy and safe work conditions for employees.”

A source at the regional administration for Vologda, where Cherepovets is located, told CRU Steel News it is not aware of any complaints regarding the Cherepovets plant’s water treatment or chemical waste disposal. The mayor of Cherepovets, Oleg Kuvshinnikov, said today that because the inspection will not be finished until September 9, “it’s too early to comment on the damage to nature.” But, according to Kuvshinnikov, “recently pollution by the Severstal factory has gradually decreased because of optimisation of production cycles, decrease in production and putting the old open-hearth furnaces out of operation.” The mayor added: “Complaints by Cherepovets residents are very few.”

Russia’s regional administrators usually protect steel proprietors from the impact of federal regulatory inspections, and from having to pay the penalties these have imposed in the past. In the only known precedent of RPN taking action against water pollution and waste treatment violations in the steel sector, the Kemerovo governor, Aman Tuleyev, tried to block RPN from sanctioning Evraz, and requiring the construction of a new waste-water treatment plant to serve the Novokuznetsk Metallurgical Combine (NKMK). That happened during administrative and court proceedings in 2006, when RPN was headed by Oleg Mitvol, an activist. He was ousted from his post last year.

CRU Steel News reported in December 2006 that following eleven months afrom RPN’s order to Evraz for closure of the Novokuznetsk plant’s water treatment plant, Mitvol negotiated a compliance agreement with Evraz and the region. In return for rescinding the order to close the old water-treatment plant and halt steel production at Novokuznetsk, Mitvol said that Evraz agreed to invest Rb2.4 billion (then $92 million, now $76 million) in new treatment and anti-pollution facilities at Novokuznetsk, as well as at the group’s nearby mill, Zapsib. “It is an unprecedented decision and we are very happy to reach it,” Mitvol said at the time, noting that the enforcement of environmental controls against a major Russian industrial group was unprecedented.
But no water-treatment plant has materialized in the intervening three years, and implementation of the Evraz agreement remains up in the air. There are industry reports in Moscow that Evraz will not build the new plant until 2010, but the company spokesman, Tatiana Drachuk, has not responded to confirm the date, or explain the delay.

When Evraz listed its shares in London in 2005, its investor prospectus acknowledged that its “operations generate large amounts of pollutants and waste.” The company also conceded it was subject to environmental regulations “that require the clean-up of contamination and reclamation.” The company noted that clean-up costs are “often impossible to assess unless environmental audits have been performed and the extent of liability under environmental laws is clearly determinable.”

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