Russia is burying money in quartz sand
14.06.2011 — Analysis
The project for production of high-purity quartz concentrate in Yugra has been put in jeopardy. The scheduled for mid June, 2011 signing of the agreement concerning the integration of the Rusnano State Corporation and Khanty-Mansiysk Bank into the shareholders of Polar Quartz OJSC, may not take place. The current owners of the company suspected the executives of inefficient money management and arranged for audit, which is definitely discouraging for entering into investment transactions. Experts argue that investors are already reluctant to make investment in quartz production and refining due to immense risks. As the "RusBusinessNews" columnist has found it out, with absent private capital and innovative technology, this project is doomed to useless squandering of budget funds.
The idea of building an enterprise that would produce high-purity quartz concentrate in the Nether-Polar Urals traces back to the late 1990s. This product is used in manufacturing of crucibles, which, in their turn, are used for growing crystals for electronic and lighting industry, and recently - for manufacturing of solar cell batteries. Russia has very few consumers of quartz concentrate; however, the world market demand for "solar" quartz is increasing rapidly. Experts call it "oil of the 21st century". It is this market that caught the eye of the Yugra authorities, which decided to start development of quartz deposits.
The pilot production and technology validation resulted in establishment of the Polar Quartz state enterprise in 2000, which three year later was restructured into a joint-stock company controlled by the Yugra authorities. Later, more than 20% of shares were acquired by the Ural Industrial - Ural Polar Corporation. The shareholders gave the go-ahead for construction of an industrial complex in the town of Nyagan (Yugra). The project was expected to result in the annual output totaling 10 thousand tons of concentrate and 2 thousand tons of silica powder, and was estimated at 50 million US dollars.
In 2009, Alexander Mitrofanov, General Director of Polar Quartz OJSC, informed the shareholders that more than 92 million US dollars had been spent on implementation of the project, however, only the first phase of the beneficiation factory had been completed. The production of high-purity quartz concentrate needs another 50 million US dollars. He suggested that the money should be taken from the Yugra budget. In the mean time, it was found that exactly the same amount is required to provide the factory with its own raw materials. Polar Quartz has not developed the deposit so far. Quartz concentrate is purchased from the Kyshtym Mining and Processing Integrated Works OJSC.
The executives of Polar Quartz planned to receive "raw material" 50 million US dollars from Rusnano by signing an investment agreement with the state corporation. The legal finalization of the transaction was to take place at the St. Petersburg economic forum in June 2011. However, as it is stated by Alexander Mitrofanov, money calls for quietness, whereas Polar Quartz stirred excitement.
The Russian press published announcements stating that A. Mitrofanov spent unreasonably large amounts on communication and outside-the-country personnel training, wrote off tons of explosives, transacted business through captive companies, etc. The director of Polar Quartz addresses these accusations as "absolute nonsense" and believes that spread rumors are intended to evict him out of his post of general director.
The Ural Industrial - Ural Polar Corporation representative informed "RusBusinessNews" that the shareholders did not pass any resolution on management changes in Polar Quartz OJSC. At the moment, the company is going through audit, the track record of the project is being scrutinized, and technological aspects are being examined. The independent experts' opinion will serve the foundation for the conclusion about feasibility of further cooperation with the current general director.
Alexander Mitrofanov assumes that he can expect a criminal investigation, which will scare away all investors for good: representatives of the Khanty-Mansiysk Bank and Rusnano were highly displeased with the information about the company being audited by law enforcement authorities. The director of Polar Quartz is afraid that his resignation will be followed by dismissal of the professional that he invited. It can result in complete failure of the project.
In the meantime, experts imply that the project is doomed in any case: Polar Quartz has been operating for 14 years; however, it has produced nothing but pilot prototypes. Over the same period, Trina Solar, a Chinese company, produced the first batch of solar modules made from polycrystalline silicon produced by Nitol Solar at Usolie-Sibirsky Silicon, LLC (Irkutsk Region), and solar-power lighting fixtures came to the market. There are several factories for manufacturing solar cell batteries in Russia, but their prospects are vague. According to Vladimir Kalishev, Deputy Director of Quant-Elektronika Experimental Design Bureau, domestic product are much more expensive than the Chinese ones, as Russian companies do not have markets to sell the product and they cannot launch series production.
Russian manufactures have also lost the best time to start up facilities for crystal growing. These technologies were fine-tuned back in the Soviet days; however, in the 1990s the Russian electronic industry collapsed and Russian businessmen failed to set up product supplies to other countries. Consequently, the right time was missed with adoption of technologies for high-purity quartz concentrate. Today, according to V. Kalishev, there is no sense in setting up vertically integrated complexes starting them from scratch, i.e. with development of deposits: the market is already occupied. To take the competitive edge from the Chinese or Koreans Russia should come up with some incredibly efficient technology, which it does not have, and, more than that, no one is willing to finance its development.
Valery Voroshilov, Executive Director of TSNT IntellectEnergo, LLC, states that investors prefer to take off-the-shelf technologies and even component from other countries, letting Russia deal with assembly operations. For example, the Optogan Company (billionaire Mikhail Prokhorov is a major shareholder) built a factory for manufacturing of LED lamps in St. Petersburg, the factory that was addressed by Sergey Ivanov, Deputy Chairman of the RF Government, as "the first real-life enterprise in the nanoindustry". In actual fact, the factory assembles modules from LED chips that are made in Germany. The lamps manufactured by Optogan duplicate Chinese products, while yielding in design and illumination quality.
Oleg Nikulin, Director of the Rosnanosvet Company, says that investors are afraid to invest in processing of quartz raw materials in Russia. The present-day world technologies for production of silicon suitable for manufacturing of solar battery cells are extremely sophisticated, power consuming and require substantial expenses on waste disposal. Therefore, heavy investment should be made in development of inexpensive and environmentally sound technologies of manufacturing quartz grit and silicon. However, investors have no intention to take risks in Russia, being afraid that once the solution has been found, they will be deprived of their business. Thus, O. Nikulin anticipates that all the projects aimed at manufacturing of advanced quartz-and-silicon products will end up in mere verbiage.
All the aforesaid can be applied to the fullest extent to Polar Quartz: Taking into account costly technology and existing risks, none of the private investors will spend a penny on this company. On the other hand, officials readily inject money into the joint-stock company, which is controlled by them themselves. Burying budget funds in abysmal deposits of the Nether-Polar Urals attracts many of those who favor government construction projects. Alexander Mitrofanov states that the assault against him is nothing but the desire of some officials to get a grip of money flow.
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