The project of the decade

01 May 2008

sergei baranoshnikov, the director for the department of construction and basic asset management at

sergei baranoshnikov, the director for the department of construction and basic asset management at uralkali.

Uralkali's management plans to reach output of 7 million tonnes of potassium chloride by 2008. Such an increase in production requires large-scale investment, and the first stage of the investment program, unique in the russian chemical and mining industry, is set for 2005. Sergei baranoshnikov, the director for the department of construction and basic asset management at uralkali, expands on the details of such an ambitious project.

q: what are uralkali's investment plans for 2005? how much will investment grow compared with 2004?

Uralkali is one of the largest investors in its own manufacturing sector in the perm region. Investment has grown from us$ 15 million in 2002 to us$ 29,5 million in 2003. Our planned investment in 2004 is us$ 35 million, and the company plans to double this figure in 2005 to consolidate our leading position in the field

q: what are the main objects for the capital investments planned in 2005?

2005 is going to be a year of breakthrough for the company in many respects-our construction department has never faced such ambitious tasks. In the short term, we need to complete projection and construction of facilities to produce halurgy potassium chloride (so called white powder) and granular potassium chloride, which will enable the company to reach new production levels. To achieve this, we need to develop a new ground-based complex at the mine at the berezniki ore development unit (bkru) no. 4. The complex will include inter-plant ore transport and an expansion of the crushing section, as well as the development of a new technological complex, consisting of the main building, drying building, circle mineral water supply system and warehouse capacities, as well as a re-agent section. This will also require improvement of the subsidiary systems such as the boiler-house, electricity networks, water and heat supply systems, communications and administrative buildings, as well as other tasks.

q: what amount is to be invested in construction at bkru no. 4?

The total estimated cost of the whole development project will exceed us$ 175 million by 2008.

q: uralkali is already the leader among the russian potassium fertilizer manufacturers. Why does the company need such a large-scale construction?

The last large-scale project at bkru no. 4 was completed in 1987. Development of bkru no.2 was completed in 1970 and bkru no.3-in 1974. Since then we have been working on our basic assets. The main task of the 90's was to survive and keep staff, equipment and technology. Now this period is behind us we have set out to prove to the world markets that our production is even better than that of our competitors in some respects.

We are getting close to the point when our technical capacities will have reached peak load. Without expansion we are unlikely to reach our goals to gain a strong share in the global potassium fertilizer markets.

q: have you found a planner for the projects scheduled for 2005?

Yes, our old partners, the perm halurgy institute and the st. Petersburg halurgy institute. Planning for the bkru no. 4 project is completely in their hands. We have also made good progress with negotiations with foreign planning companies to participate in the projects.

q: can you name the general construction contractor for the project?

This is the issue i want to talk more about. In order to reach the set goals we need to have a reliable and strong strategic partner for long-term cooperation. However, the developers in the perm region don't have sufficient resources to complete the project. I also believe they don't yet have enough experience to proceed with the construction of such large and specialised industrial facilities. There have not been any projects of the type we have planned for 20 years-in the perm region or russia in general. So, in order to find the right developer we have to look around the whole country or, maybe, even internationally.

I would not exclude perm developers completely, but i believe that cooperation with them might be possible only on a subcontractor basis. For example, the berizniki mine construction department (bshsu), a local developer, specialises in developing underground complexes. We enjoy cooperation with the company and like the quality they provide. So, we might consider bshsu as a subcontractor for the project.

q: what criteria have to be met by a potential general contractor?

Uralkali is a solid, large company, so the potential general contractor must fulfil certain conditions. First, we will pay attention to the company's experience in the field of industrial construction. We realise that it will be very difficult to find a company specialised specifically in the construction of chemical plants in russia. However, experience in industrial construction, particularly in oil, gas, and machinery as well as an understanding of the chemical industry is a requirement. We also expect our potential partner to have sufficient technical and production capacities, as well as engineering potential.

The successful general contractor should be able to organise the work in shifts and move large amounts of technical equipment and machinery to the site. However, it is going to be extremely difficult to rent the technical equipment and machinery within the perm region. The local companies just don't have enough equipment to satisfy the needs of such a big project.

q: does the general contractor have to meet any financial requirements?

We expect the general contractor to be a company with an annual turnover of at least us$ 20 million. The company should also have floating assets and internal funds and be ready to put them into the business during certain stages of construction.

The order of payments is an important issue. Many big companies prefer working without having to make preliminary estimates and use an agreement payment scheme. Although it simplifies the payment process, there is a risk of overpayment for our company. So, we would like to use a different approach based on an agreed price calculated on the basis of the preliminary estimations. In any case we will accept a compromise solution and not start construction before reaching an agreement.

q: will the construction be insured? certainly. When talking about a us$ 175 million project, all risks have to be minimised and insurance is a major condition before starting the project. Also, taking all risks, the insurance company will set up an extra filter to help us find a more reliable contractor. An insurance company will check on the contractors on the basis of experience, assets and financial activities. This is very important for us.

q: will you give preferences to russian or foreign companies?

This is not a key issue at all. The most important criteria are: experience; reputation; reliability; and the financial stability of a potential general construction contractor.

q: what is more important in the contractor's proposal: the experience or the cost?

Both. We are a solid company. We have allotted a huge amount of money for construction and we will be considering only serious proposals.

q: what are the contact details and terms?

We expect the companies interested to contact us as soon as possible. Uralkali plans to have the list of the companies in january 2005. To read more about uralkali, please, visit us at your proposals can be sent to:

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