Metallurgical mills indicated the largest economic growth among the Ukrainian enterprises in 2000. This was achieved owing to the economic experiment that is now being carried out, pursuant to the Law of Ukraine “On economic experiment in the mining and m
METAL CONSUMERS TO REVIVE
METAL CONSUMERS TO REVIVE
Metallurgical mills indicated the largest economic
growth among the Ukrainian enterprises in 2000. This was achieved owing to the economic
experiment that is now being carried out, pursuant to the Law of Ukraine “On economic
experiment in the mining and metallurgical sector” and, primarily, due to tax incentives
granted to enterprises of this sector. The editorial board of our magazine addressed Mr.
Vladimir Tereschenko, executive director of the Ukrainian Association of Ferrous Metal
Producers (UkrAPchermet), with the request to tell our readers about the industry’s
prospects.
- Today, all the financial and other economic figures
reported by ferrous metal makers indicate the experiment’s efficiency. Changes to the
Development Program of the Mining and Metallurgical Sector are currently being prepared.
What are the most important changes to be made to this Program?
- Indeed, there can be no doubt about the fact that the
mining and metal making enterprises exhibited excellent performance last year. All the
enterprises participating in the experiment reported production growth.
Economic results prove that metallurgical mills operated
profitably. The average rate of return at the Ukrainian metal-making enterprises came to
20.5% last year. Only three enterprises (Makeyevka integrated mill, Kramatorsk, and
Konstantinovka metallurgical mills) operated without profit. At the same time, it is
necessary to note a prominent improvement of Azovstal’s performance. The preliminary
estimates of 2000’ figures indicate a 20.6% rate of return at this enterprise. Also,
high profitability figures were registered at Ilyich Iron and Steel Works (31%), Donetsk
metallurgical mill (23%), Krivorozhstal ISW (34%), and Zaporozhstal ISW (27%). This means
that the present experiment in the Ukrainian mining and metallurgical industry has enabled
the enterprises of this sector to make earnings and use them for replenishment of current
assets and, first of all, for production development. Such mills as Ilyich ISW, Donetsk
metallurgical mill, Azovstal, and Zaporozhstal are now taking full advantage of this
opportunity. Heads of these enterprises understand that unless they do their best to
upgrade and improve production processes, performance will worsen in the future.
As regards the Program itself, it will spell out the
measures aimed at development of Ukrainian metal-making enterprises that were worked out
jointly by our design institutes, Metallurgprom Association, and the Ministry for
Industrial Policy in 1993. However, it is necessary to take into account that a real
development program must clearly define what specifically is required from the industry at
each stage of development of the country’s economy, i. e. what kinds of metal products
and in what quantities the industry will have to make in the next year, as well as in 5 to
10 years, and who the consumers of these metal products will be. Metal consumers, first of
all, include all kinds of machine building, aviation, and shipbuilding enterprises, as
well as those making special military machinery. Secondly, it is necessary to develop
industrial construction, which is currently next to absent in Ukraine, as well as road
construction. Thirdly, we have to do our best in order to increase the number of metal
consumers, i. e. to attract new metal consumers such as processing and ferrous
metallurgical enterprises (for example, tube and metal hardware plants). Currently, the
key problem is to obtain orders for future metal supplies from them.
- Mr. Tereschenko, another urgent problem is the
necessity for revival of the internal metal consumption and further planning of metal
output. Today, the metal industry is export-oriented: 80% of the total quantity produced
is exported and only 20% is sold on the domestic market. What promising ways of
cooperation between metal makers and allied industries does the Association plan to offer
?
- It must be noted that the experiment is scheduled to end
in December 2001. It should be clear by now that its main parameters ought to be adopted
not only in the taxation system for metallurgical enterprises but also in all the other
allied industries and, in the first place, in metal-consuming industries. This opinion was
voiced by heads of enterprises during their meeting with the President in Krivoy Rog. It
is the strong belief of the Association that the mentioned changes must be made to the
existing taxation system, because the present heavy tax burden borne by metal-makers
(everybody admits that taxes are too high indeed) negatively affects development of the
country’s economy. Any person involved will say that under the present taxation rates,
an enterprise is unable to function normally: it can hardly maintain itself, not to talk
about extended reproduction. The taxation system should be reformed in the way that
complies with the economic experiment’s conditions.
To further discourse on this matter, I would like to point
out that there recently was held a meeting by the State Committee for Industrial Policy
regarding farm machinery-building, and representatives of metallurgical enterprises took
part in this event too. The issue of increased metal supplies to farm machinery-building
factories was raised at the meeting. The Association is now cooperating with the Committee
for Industrial Policy and individual enterprises of heavy engineering of the energy and
transport sectors, which are now the most powerful enterprises and are to become the most
active metal consumers in the future. We plan to arrange a meeting of heads of
machine-building and metallurgical enterprises so that they could establish closer
economic ties between their enterprises. The main objective of such a meeting would be to
satisfy the needs of machine-building enterprises in all kinds of metal products required
for machinery construction. I hope that these contacts will be highly fruitful. Heads of
all enterprises representing allied industries should establish and maintain contacts that
will facilitate development of market relationships between the corresponding enterprises.
- Mr. Tereschenko, you have mentioned the problem of
internal metal consumption. In order to forecast demand for metal, it is necessary to know
what kinds of metal are required for industrial production. Obviously, in order to
successfully perform orders for metal products, upgrades and modernization of metal
production are required. At whose expense will the enterprises carry out the necessary
modernization measures ?
- The State Committee for Industrial Policy is currently
working out the new Development Program jointly with Metallurgprom Association and with
our participation. The Program defines possible sources of financing required for
technical upgrade of metal-making enterprises. Presently, nearly all companies have been
successfully transferred to private ownership. The State owns the controlling interest in
only few metallurgical enterprises. This is why, to a certain extent, an enterprise’s
technological development should be financed by its owners. However, there is no doubt
about the fact that the State should also assist enterprises in their reconstruction so
that they could fully satisfy the demand of machine-building enterprises and all other
metal consumers in high-quality metal products. In my opinion, the State’s participation
in metallurgical mills’ modernization should be as follows. The financial means spent by
a metal-making enterprise on technological upgrade and re-equipment (which mainly come
from its earnings) or those spent on major repairs must be made exempt from all taxes.
Enactment of a law that will provide enterprises with wider opportunities for spending
their earnings on reconstruction and production upgrades would be of great assistance to
them. In this way, law-makers could contribute to a strengthening of Ukrainian ferrous
metallurgy, which is the basis of the country’s industry.