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Investment in Russia has been always treated as unsafe. Only those, who perceived themselves to be absolutely familiar with Russian political situation and balance of powers between business elites dare to make large stakeholder investments in Russian businesses. And even if you do understand who is managing the enterprise you are investing in and what his relations with fellow Russian “oligarchs” are it is still better to check about his relations with Kremlin officials, as these fellows are the final decision-makers when it is concerned the safe future of your investment.
Eurotoaz Limited, a minority shareholder in TogliattiAzot (ToAZ), a Russian chemical company, sometimes described as the world’s largest ammonia producer which headquartered in Tolyatti, Russia, has done almost zero homework described above, or just by the occasion got to the very common situation, especially for Russia, when you own something and don’t control or able to operate it at the same time. Eurotoaz has got a 10% stake in ammonia combine in return for almost $20 million investments made in 1994-1996, but the its name has simply disappeared from the registry of shareholders.
Eurotoaz and other minority shareholders, being unable to defend themselves on the shareholders meetings of ToAZ and banned from influencing any management decisions made on the enterprise, had launched a public letter to ToAZ management in which they accuse it of using tolling schemes involving two Swiss trading companies Nitrochem Distribution AG Ð¸ Fortrade AG. As a result of tolling operations, says the letter, combine suffers a $100-200 million annual losses in profit. Minority shareholders intend to file a lawsuit against combine’s current owners and their product sale policy, stating that the claim would total for more than $1 billion which management was able to withdraw on the offshore accounts avoiding tax payments to the regional budget.
Minority shareholder’s claims are heavily supported by other evident mentions of ineffective and damaging for the industry business model, chosen by ToAZ management. Research and Design Institute of Nitrogen Industry and Organic Synthesis Products has issued a report valuing efficiency of capacity loads on industrial enterprises of the chemistry and fertilizers production sector. According to the report ToAZ uses four Chemico (USA) ammonia machines with project capacity of 450 thousand tons and three Russian-made GIAP machines with project capacity of 450 thousand tons. In 2011 combine used only 75% of Chemico capacities and 86,5% of the capacities of GIAP machines. In 2010 there were only frightening 46,2% of Chemico capacities used. The report also claims that ToAZ is the leader in the repair downtimes for all of the machines. In 2011 Chemico machine has been down for 44,7 days, while GIAP was down 50,3 days what compared to the industrial average of 10-26 days is simply a disaster.
Such negligent strategy aimed at receiving huge short-term profits couldn’t include any investments in ecological and recycling capacities what resulted in more than 500 ecological and safety violations found by Rostekhnadzor, Russian ecological and work-safety watchdog, in 2011.
Russian media reports that the amount of pollution produced by the combine increased by 300 tons in 2011 compared to 2010, while ecological investments by the combine management has been a pity 12 million roubles, cut by 7 million compared what they did in 2010. Such ecological strategy would inevitably attract the attention of Rosprirodnadzor, which monitors ammonia producers as a part of ecologically risky industry.