Genuine Russian Struggle for Uralmash Assets

11.05.2010 — Analysis

The Uralmash Company, with the well-known brand in Russia, was privatized by entrepreneur Kakha Bendukidze in the early 90s; was restructured and sold out retail in several steps. In 2005, the production of drilling rigs was taken over by the Group of Companies "Integra" that dealt not only in service, but also in production of drilling equipment. Experts state that the sale put an end to the legendary Uralmash, since the intellectual property had already been taken over by Severstal OJSC.

The professionals who followed the facilities and came to Integra claim that initially the oilfield services company nurtured the plan to combine within 3-5 years all the Uralmash subdivisions that had at least some fair promise. The Integra executives did not mind integrating into its structure even armament factory No 9 manufacturing tank gun-barrels. However, the plans were not destined to come true.

Shortly after the acquisition of the Uralmash property, it turned out that high quality drilling rigs could not be made with the existing equipment: one of the shops had only two modern machine-tools, all the rest were over twenty years old. Integra had to develop an investment program to renovate the equipment stock as well as to take organization measures to protect the equipment from being ransacked. At that time, Uralmash had stopped being a single entity; however, the entire huge territory of the plant was serviced by properly operating diesel locomotives, thus any poorly guarded property was exposed to risk. The personnel problem was of equal importance. There was no one to count on, but for silver-haired lathe operators: Integra had to bring workers from Izhevsk.

However, the most formidable obstacle was lack of components. Uralmash lost its connections with suppliers back in the 90s, and Kakha Bendukidze, according to the professional staff, did not make proper efforts to renew them. Admittedly, it was next to impossible at that time, as the country plunged into the systemic crisis. Consequently, most of the owners looked toward receiving more orders and advance payments to be able to drive up share prices and immediately sell the stock at a profit. The sellers were not concerned about the future of the company that was unable to fulfill the received orders due to its technological backwardness. It was of no concern for Kakha Bendukidze who, however, took a different approach. The former managers say that the Uralmash owner, like the hero of the famous movie "Pretty Woman", early on was poised to sell the company piece by piece - assets stripping is known to be the quickest way to receive ample recovery of the money that was spent to acquire a company.

The chosen approach did not involve any long-term recovery strategy to pull Uralmash out of the crisis. Eventually, such an attempt was made: in the late 90s Oleg Belonenko was appointed the General Director who started to forge relationships, regenerate trade schools, and invest funds in the social services to offset low wages of the personnel. Soon afterwards, Belonenko was shot dead on the street. The person who ordered that cold-blooded murder has not been found yet. Police investigators came close to the killers, but the day before the killers were arrested, they had been killed. The police are sure that the associates from the central office "leaked" the information.

Integra also failed to solve the problems facing the manufacturers of drilling equipment. Lack of skilled personnel, low returns on lending resources and weak production capacity were unable to set the equipment production at the proper level. The plans were also upset by Gazprombank that bought Uralmash and started to drive Integra out of the market. At first, the new plant owner lured away the designers, tempting them with a high salary; later, it contested the legality of Integra's possession of the Uralmash brand. In addition, the oilfield services company encountered problems with access to utility services that were provided by Uralmash.

Under pressure of circumstances, Integra had to remove the word Uralmash from the name of the subdivision that manufactured drilling equipment; however, the court allowed it not to return money for using the borrowed brand. Then, the new executives of Uralmash requested to file criminal charges for unauthorized distribution of the production property of the oilfield services company. The plant managers state that the former management of the company bargained away the disputed facilities. The police listened to the reasons given by Uralmash and initiated a criminal case under Article 201 of the RF Criminal Code "Abuse of authority" against the unidentified persons who through their actions inflicted harm to the plant in the amount of 600 million rubles.

Sergei Beldinsky, the spokesperson of the Group of Companies "Integra", thinks that the criminal suit is not worth sixpence. The premises that caused the hot dispute are incomparable in value to drilling rigs that are made by Integra. The company representative assumes that the fuss about the assets sale has been made for a reason: the time is tough; petroleum and gas industry people, taking advantage of the crisis, knock down the price, delay payments, or completely refuse to enter into contracts, explaining their decision by problems facing machinery makers. The initiation of the criminal case and the subsequent seizure of documents in the Integra office resulted in a 5% drop in its shares. In such circumstances, the company least of all is interested in war-fighting with Uralmash, but the new owners of the plant fend off any contact, giving an ample elbow-room for stock market stirrer-ups.

Experts doubt that in this context Integra will be able to fulfill in full the orders that were placed by Rosneft and Gazprom for manufacturing of nearly 30 drilling rigs. The executives of the oilfield services company seem to have come to the same conclusion: according to the former employees, Felix Lyubashevsky, President of Integra, is negotiating a sale of the drilling equipment production facilities back to Uralmash.

If Gazprombank purchases the machinery-manufacturing business of Integra, it will hardly help Uralmashzavod solve its problems and its owners are unlikely to make money out of production of drilling rigs. Experts state that Uralmash-Burovoye Oborudovanie CJSC (Drilling Equipment) is able to manufacture not more than two rigs a year, and it is highly doubtful that any investor will be willing to invest substantial funds in ramping up the production at the time when nobody in Russia can feel secure about the future.

Alexander Romanikhin, President of the Association of Oil and Gas Equipment Manufacturers, sees the methods of conducting the fight for the Uralmash facilities as savage. In his opinion, the entire Russian machinery manufacturing will be crippled, and the winner will be China that will fill a shortage of drilling rigs on the Russian market.

Vladimir Terletsky