#86, November 4, 2003
"BOR" NEEDS INVESTORS
The shareholders of JSC Bor made a decision at their meeting in September to appeal to arbitration court for pronouncing the company bankrupt and starting receivership procedures.
Many things have changed to the better in the company during past year after Bor's bailout manager became Alexander Karlin. The existing capacity has a full load, sales are much better. The portfolio of orders for boric acid in this year is 19,000 tons more than in 2002 and 3,000 tons more than had been planned. Orders for calcium borate total 8,000 tons.
The company bought a new Japanese-made line valued at $100,000 for packing boric acid in polypropylene bags. Sales organization became more effective. In the rule of previous bailout manager Alexander Kozik, sales were made through middlemen in Moscow with Bor receiving just enough to run production. Bor did not know at what price its produce was sold and how much went to middlemen. At present, sales organization is transparent. Bor founded its own trade house "Bor-Export," and "we know the price and dealer's commission," says Tatiana Mazur, Bor financial director.
Bor put into service phase one of an-inhouse mini-power plant last year and will commission phase two in December. This mini-plant generates 3 megawatts of the total of 20 megawatts consumed by the facility. The company has serious support on the part of the regional administration (local rumour has it that Karlin is its protege). In this year, Bor enjoys privileges in electric power tariffs that will save it 120 million rubles a year.
There are so many orders for 2004 that Bor even can select clients and places emphasis on Asia Pacific markets with its considerably higher boron prices. Prices is Europe are dumped by Turkey selling boric acid extremely cheap though it is of inferior quality to Bor's produce. Company management faces a challenge to sideline Turkey, American Borax and Chile producers as much as possible in the Asia Pacific market.
International boron prices were declining during recent years from $500 down to $400 and less per ton, while the prime cost at Bor goes up. It spends more on raw materials, electric power, transport services and has huge debts on its hand.
The management team decided to curtail all additional costs. Thus, Bor turned over to municipal authorities its social facilities during last year - hostels and waste water treatment plant that serves the city. TURS catering sub-division was converted to an independent company.
Still, the count-appointed manager retained children's summer camp and medical aid division in Bor's possession. The social package for staff is also in place, including free meals for mine operatives, free medical services. Wages are paid on time and with reference to inflation rate.
So, why to start receivership procedures or, in other words, sell the company? For debts? Not only debts.
Attempts to get Bor bankrupt date back to 1998. At that time, bailout manager was Energomash Corporation who could repay debts, because a moratorium was imposed on 193 million rubles of debt after introduction of bailout procedures. However, bailout managers who succeeded one another from year to year only made new debts.
"ZR" FILE: During 5 years of bailout procedures, Bor's debts has grown by 808 million rubles, of which A. Kozik's team accounted for 667 million. Their practice to draw more loans and issue bills of exchanged has its effects on Bor's performance until now, because these debts have to be repaid by the serving team. Bor owes 72.9 million rubles to budgets of all levels, though Dalnegorsk's municipal utilities, in turn, owe it 72.9 million rubles for heat and hot water, and another 10.8 million rubles is owed by utilities in Chuguyevka. Year 2002 was finished with 124.9 million rubles in the red.
Bor earned a small profit (slightly over 1 million rubles) in the first half of 2003, first time ever during many years. However, its lacks working capital and continues living on borrowed resources.
Being a low-profit business, Bor will never be able to repay debts itself. As creditors became aware of that, they appealed to arbitration court seeking to sell the company. It is a wonder that Bor continues operating and paying wages.
What do Bor's people think about this?
"Surgery methods such as receivership followed by the advent of a real owner is the only possible alternative. We expect that the new owner will bring investments," says Anatoly Ryabtsev, acting executive director and technical director. "Debts are not the only problem. Equipment is worn out at 70-85%, particularly in one of our major shops producing sulfuric acid, a necessary component for boric acid production. Even if major repairs are undertaken every year, it will hardly last through 2008. Technical surveillance authorities will not allow operate this equipment any longer. The mine needs its equipment renovated as well: we need to buy a bulldozer and 2-3 Belaz trucks in the next year. Technologies and equipment have not been upgraded since 1960-1970s. If not debts, then depreciated equipment will kill us. We need investments as badly as air."
Experts estimate that Bor will need 1.5 billion rubles during 2004-08 to maintain and renovate the existing capacity and a total of 2 billion including the development budget.
Rank and file employees also agree with that. Senior foreman of heat supply division Anatoly Shakhov is in charge of boiler operations. "Boilers are 14 years old. They will run 5 years more maximum. What next? Two monohydrate absorbers are in a critical condition. The boiler facility will run for several years at most and grind down to a half next year at worst. If Bor shuts down, more than 4,000 will become jobless. Old people will retire to pension, younger ones will go to employment bureaus or look for jobs in Vladivostok or mine gold in Yakutia or Amur Oblast. There are no jobs in Dalnegorsk. Wages at Bor are not high but guaranteed. That's better than nothing."
The new management team worked out a development programme for 2003-08. According to estimations by Bor specialists, an upgrade of existing facilities and construction of new capacity will required 1,342 to 1,902 million rubles.
First item on the programme is construction of a sulfuric acid shop, repair of equipment in the existing one, building up capacity of tailings storages, reconstruction of the boiler-room, renovation of mining machinery. Another 130 million rubles is needed to de-mothball the boric acid shop which is prompted by growing boron sales.
The new sulfuric acid shop will require 750 to 1,300 million rubles depending on selected technical solutions. Bor already started searching for new technologies and equipment for this production shop. Some proposals have been received from domestic and foreign companies (Polish, Canadian, Japanese, German) offering a whole package of engineering and construction services to introduce the required technologies. The project price is $18 million to $42 million.
There will be a meeting with representatives of these companies in Moscow in November and by year's end Bor will have to make its decision. Standard construction schedule for this project is 1.5 years. Construction must be completed before the deadline of 2008. In parallel, Bor management works to maintain capacity of the old production shop. An agreement concluded with Giprokhim (Moscow) that gave recommendations on a new sulfuric acid facility and did some engineering for technical renovation of the existing one, where part of equipment must be replaced already in 2004.
If bailout management continues, Bor's debt will grow by another 1.8 billion rubles by 2008, experts predict. Losses will exceed 1 billion rubles and the company will be unable to repay debts. And nobody will give new loans. The only way out is to terminate bailout procedures ahead of schedule and start receivership procedures to get a new owner and investor. - Tatiana KUROCHKINA.