Russia in Perspective: Lipetsk Oblast Experiencing Post-Soviet Industrial Manufacturing Revival!
Lipetsk Abroad. Special Report, by Anton Borisov
Have you seen how ultra-tough metal is born, how they make equipment that guarantees that you sow and reap well, how they make protection elements against lightning bolts, how they make car tires, how robots build oil pumps, and how they cook food for the littlest ones?
You'll receive the answers to those and other questions right now.
They're located on the coast of Voronezh. To be exact, it's a river called Voronezh with the city of Lipetsk built on it. We've arrived in Lipetsk Oblast to show you how the region is evolving and tell you about its accomplishments, issues, and solutions.
Let's begin with foreigners. Why foreigners? First of all, because here everyone monitors world prices for steel. One of the major taxpayers of the region is the gigantic Novolipetsk Steel Mill. Its products, we're going to talk about them later, are sold around the globe. Another reason we're talking about foreigners is that the manufacturing index between January and March was 102%, higher than the Russian average. The credit for that partly goes to foreign companies, and they want to develop cooperation. Igor Artamonov confirms their eagerness.
— They don't seem to care about politics.
Igor Artamonov, acting governor: «We met at the forum. The Germans told us that despite the sanctions, they invested more in Russia over the past year. They realized that nothing ventured means nothing gained. They come here, we invite them, and we work together. Austrians, Germans, Italians are our key partners».
Why are Germans or, say, Italians so attracted to this land? It's time to travel from Lipetsk… to Lipetsk. Lipetsk, not the city but the special economic zone. It was created in 2005 and was one of the first in Russia. Since then, the region's acquired a lot of investments.
Let's see it. The territory you see now used to be a grass field 12 years ago. But companies from 16 countries invested 200 billion rubles ($3.2 billion) in the development of their industry.
— How are these projects developing?
Igor Artamonov: We already have 65 residents, 5,000 new jobs, and an average wage of over 50,000 rubles per month. It's quite alright.
— Are you growing?
— Of course, we're launching another seven facilities this year. We have two special economic zones here, the other one's called Yelets. We're actively working on filling it right now.
There are also regional zones. It's become so crowded here in the Gryazinsky District. 20 new facilities are opening this year alone. 44 billion rubles ($700 million) are being invested in them.
Alexey Istomin, deputy director of the Lipetsk Zone: «We have more land parcel in Yelets, 3,200 acres. It's bigger than this one. We're writing our success story from scratch there. We're creating infrastructure, we're creating the ideal investment climate for entrepreneurs. There are already resident-companies in the zone. Some companies have already built their facilities and are launching them this year.»
But why does everyone see this place as a cash cow? Financial benefits, as well as low rents, customs fees, and taxes. The resident-companies produce tires and electronics, glass and oil rig equipment, french fries and heating boilers, as well as many other things.
Let's check on one of the residents of the special economic zone. And here's what they produce in here. What do you think this thing is? It's a lightning bolt protection element. And that's only one product out of the 30,000 product titles, which this company sells all over the world. This company has a century-long history and was the inventor of the dowel. In Russia, it primarily produces cable-laying systems capable of withstanding any pressure, regardless of how hot or cold it is outside.
Alexey Afinogenov, production director: «The equipment required to produce, say, cable trays requires six months of development. The production costs are also big. It takes three to six or more months to prepare any product for mass production. Our products are complex, even though they may look simple at first sight».
Four years ago, only 30 people worked here. Now, 260 do. Lipetsk supplies its products all across Russia.
— How much do you produce?
Alexey Afinogenov: We have a wide range of products. We produce various products for various purposes. If we sum it up in one number, it's over 5,000 tons of metal annually.
— And you're expanding?
— Yes, we built a new facility this year. It has unique equipment and will be used to manufacture new products. In addition, we plan to build a galvanizing facility next year.
Here's a product that may come in handy at a construction site or in a new house. Another resident of the special economic zone doesn't drag its feet but drags metal instead. It even produces metal accessories for rubber wares.
This is a special fiber used to reinforce concrete. 25% of the products of this facility are designed for the construction sector.
— Could you tell us about investments? How much was invested in this ultra-advanced productions?
Erwin Lokere, CEO of Bekeart Lipetsk: «Since the launch of the facility, we've acquired over five billion rubles in investments. Last year, we installed an additional line».
Another product from Lipetsk is thousands of kilometers of metal wires. Woven in a secret pattern, they're made into steel wire cords. A car tire with a skeleton made of steel cords serves twice as much compared to one with paper cords. It was estimated that every third tire in the world has wires produced by this company inside. This cut clearly shows where steel cords are located. Here they are. One truck tire has 30 pounds of steel cords.
Erwin Lokere: “The current production volume is about 40,000 tons per year. We've been growing in the past three years. We've been increasing our volume by about 20%. Our annual sales are about three billion rubles ($47.5 million).”
Those tires are so tough because they have steel threads inside. But if you want to see some tough clothes, we've got something to show you. These threads aren't made of steel but are also quite tough. They're used to sew workwear. This garment factory isn't located in the Lipetsk Zone but in a town called Chaplygin. It's not a foreign facility, it was founded back in Soviet times, in the 1930s.
Natalia Podlesnykh, Chaplygin Garment Factory director: We worked during the war. We used to sew bodywarmers and warm jackets. Production has never stopped for even a day.
— So this factory made its little contribution to our glorious victory in the Great Patriotic War?
— I believe so.
— It was helping soldiers stay warm and defeat the enemy.
Natalia told us about current affairs with the factory as well. They don't sew for the military anymore, they have more than enough civilian orders.
— What makes this jacket different from a regular jacket?
— It's made of special new garments. The finishing is made of a special fabric. It also has light-reflecting stripes. The color combination, finishing, and this red lacing make the worker visible at any time of the day.
— And it's tough.
— It's very tough. It's a nice, tough, quality jacket.
To sew clothes that don't burn in fire, repel water, breathe, and don't rip, making up the perfect workwear, one requires technology. The facility was modernized. Now, clothes are designed on a computer and cut by a machine.
— The automatic cutter saves 30 to 50% of our time.
— What's the capacity of a cutter?
— The capacity of a single cutter is 1,000 units per shift. 1,000 units…
— Is one unit a pair of pants or a single piece?
— A unit is a pair of pants.
— So you make 1,000 pairs of pants per shift?
But whose legs will be lucky enough to wear Chaplygin pants? They may be Russian or, say, African. This factory is one of the 14 factories that make up the Vostok Service group, the largest producer and supplier of workwear and work boots. It has 12,000 product titles and sells them across the Old and New Worlds and even ships them to South Africa.
But who does the factory sew clothes for? For road workers, oil rig workers, fishermen, the workers in the Far North, and all other workers. That's just a small part of the product range.
And here are the clothes worn by steelworkers. It doesn't burn in fire. We're at one of Russia's largest steel mills. We mentioned it at the beginning of this report: the gigantic Novolipetsk Steel Mill. 27,000 people work here. The scale is astounding. The Rossiyanka furnace is one of the most productive in the world. It produces 4.2 million tons of pig iron per year. It operates 24/7. Pig iron is used to make steel. The blank is called a slab. It's heated up to 2,300° F on average. And then the rolling begins. The rolling mill is about a kilometer long. Various anvils will turn the inch-thick blank into a 1.5-mm-thick sheet.
These blanks can be used to make large diameter pipes, which are used in the energy, construction, and automobile industries. It's no surprise that Lipetsk's steel is sold in 70 countries. And it's no surprise that the entire region monitors world prices. Every year, it produces over thirteen million tons. That's 18% of Russia's entire steel production. And Evgeny claims the numbers will grow.
— Could you tell us about the investments in the modernization of the facility?
Evgeny Zorya, project manager of NLMK: «We've adopted a program called Strategy 2022, which covers the next several years. It's a comprehensive program and requires over two billion dollars of investments. We're going to upgrade the Lipetsk platform, the Stoilensky MPP, We're going to increase annual steel production by one million tons. We plan to use that steel to produce competitive products for the market.”
One of the hundreds types of products produced here, steel sheets with polymeric coating. It can be used to build a fence or a roof and to manufacture household appliances.
— As far as I see, considerable funds are being invested in equipment associated with environmental protection.
— We invest considerable funds in environmental protection. Since 2000, we've invested over a billion dollars in green projects.
Here's an example. Lipetsk Oblast and NLMK signed a contract at the economic forum in Saint Petersburg. They intend to implement a large-scale converter waste gas purification project.
— Could you go into detail?
Igor Artamonov: “We acquired 35 billions ($550 million) in investments. We're creating power generation capacities that use converter waste gas as fuel. So far, we've been discharging it into the atmosphere. But with the help of this technology, we'll be able to recycle the gas. That means green economy and green energy. We'll have a considerable reduction of air pollution. We hope that will create new jobs and attract investments. We've also introduced tax benefits. The payback period is five years, followed by pure profit, which means profit tax and property tax for us. It's a mutually beneficial project.”
Metal that won't bend after hitting a random rock, won't rust through during its first winter, and will plow through soil like butter is required for this product from Lipetsk. The facility's taking its new design to an exhibition. In terms of technological evolution, it went a long way from being a plowing iron.
— What's the correct way to call it?
Ravil Anutov, Gryazinsky Cultivator Factory director: We call it the KPU-9 universal cultivator. It's universal and can operate from spring to late fall. One KPU-9 can replace several cultivators.
— So it's very efficient?
— It’s so efficient that it can replace several machines? That's right.
— You develop your designs here, right?
— We develop our designs and then assemble them.
They've been doing everything on their own for 60 years. The facility remembers the fat years of the Virgin Lands Campaign and the domination of foreign competitors during the collapse period. Times aren't that rich now either, but the demand is low not because people don't sow.
Ravil Anutov: During our best years, we were selling 600 or 700 million units per year. In 2017, we didn't manage to sell that many and some products remained in storage. That's why we decreased our production volume a bit, down to 300 million, but now we're growing again.
— What's the reason? Is it competition or the unwillingness of our companies to purchase equipment made in Russia?
— 2017 was a tough year for the entire agricultural equipment industry. There was a huge harvest and prices were low. They were even lower than production cost.
Ravil still hopes to recover losses. He's modernizing production to make Gryazinsky cultivators better than their foreign analogues, about 40% cheaper than them. The popularity of the products is confirmed by the fact that they're in demand both in Russia and abroad among those willing to sow well.
And here's the harvest of Lipetsk's land. This is rapeseed and it's going to be turned into oil.
— We just took a sample. Is this the final product of your facility?
— Yes, it's the final product.
— It's rapeseed oil.
— Where do you supply it and how much do you produce?
Alexey Ivanov, CEO of Liboil: We process 130 tons of rapeseed in a year. We export 100% of the oil we produce. We supply it to Europe, China, and Asia.
Despite the fact that rapeseed fields make Lipetsk Oblast look like a landscape painting, rapeseed oil is considered a piece-good in Russia. Rapeseed isn't part of our consumption culture. It's primarily exported to the West, where it becomes food and biofuel. Regardless, even exported goods mean more taxes and jobs for the region.
— Our current capacity is 500 tons of rapeseed per day. But we're implementing a project, we've already signed the contract and paid for the equipment. We're planning to double our capacity up to 1,000 tons per day. We're planning to reach this capacity by this December.
— Won't you talk about investments and how much you invest in production expansion?
— We've invested about 250 million ($4 million) into production expansion.
— But you'll be investing more, right?
Speaking of business expansion, primarily small and medium business, there's a support fund in Lipetsk Oblast. However, young companies and startups are often unable to get a cheap loan, even though there's enough money.
Igor Artamonov: We're reshaping our work. Why? Because I checked on the way our support fund works. It's fast and cheap money that rarely come back. That's the usual scenario, you see. People were getting new loans for five to seven years. Why not, right? I've invited a bank to take over the fund and refinance the borrowers to get money to give out new loans. We help one company, then another one, then a third one. It's just wrong to let some people suck the fund dry.
— They do it because it's convenient?
— That's right. Fast, cheap, and no need to return the money. We used to have a 9% delay interest.
Speaking of support, there are plenty of things to discuss in the social sphere. There's the issue of deceived shareholders.
Igor Artamonov: „We basically have only one problematic building left. It's been under construction for 13 years; it's located on 50 Years NLMK Street. Many people have been tricked by the contractors. We expect to resolve this issue in cooperation with Dom.Rf, a government-owned company. We're vividly discussing the issue now. If we decide to close it, we'll definitely do that“.
It's also about family support so that people aren't afraid to have kids.
— The acting governor of Lipetsk Oblast said that people are afraid to have kids here.
— Well, there's no other explanation, you see. I'll talk specifically about the birth rate in our region. The rate has been negative for the last few years. We've created incentives for mothers to have their first child. Every young mother gets 85,000 ($1,350) from the regional budget for having her first child.
In addition, there's an industry in Lipetsk that serves the needs of those who aren't afraid to have kids.
Vegetables, fruit, and other healthy foods. For instance, this one has apple flavor. The quality must be impeccable because the most important customers will be drinking this. Baby food for months-old infants and kids who are about to go to school. Thousands of tons are waiting on the shelves of the warehouse to be sent to Russian stores and the CIS countries.
— How much do you produce in total?
Sergey Chebotayev, Progress production manager:
— We produce over a billion units per year. Last year, we produced 1.4 billion.
— You mean 1.4 billion units?
They produce all kinds of products, meat, fruit, and vegetable mash, porridge, yogurts, cream yogurt, and various sweets, over 200 product titles. The production begins and ends in the main room, the laboratory.
Olga Krasnikova, quality control manager: We mainly work with the Russian market. That's why we meet the technical requirements of the Customs Union. It's the main document that regulates the quality of raw materials and products.
— Are the requirements strict?
— Of course, they are. It's baby food that we produce after all.
One of the greatest risks for these products is humans. They aren't sterile.
— If I understand it correctly, the production's structured in a way that excludes human participation. They're replaced by robots.
Sergey Chebotayev: Right, the majority of our processes are closed. The human factor must be excluded. That's why we have the most advanced equipment everywhere. We only employ the most advanced equipment. This one produces about 500,000 packs per day. It's operated by three people. Can you imagine 500,000 packs per day? Imagine how many people we'd require to put all these packs in boxes, put all the boxes on trays, and so on.
The facility also produces bottled water, from its own wells, by the way. Mineral water is pumped from a depth of 1,575 feet by powerful pumps.
Pumping something from point A to point B is the sphere of expertise of the employees at this facility. They've been producing pumps for over 70 years. Here's the beginning of the production. Sand is used to produce, or rather bake like cookies, these special molds. We'll show you know what happens to them. Next, molten raw iron gets poured into the molds. The temperature is 2,550° F. The high temperature will break the mold but the shaped part will remain. Next, it gets mechanically processed. This is the so-called blank. It's pretty heavy. And here's the finished part. Feel the difference, as they say. And here's an almost finished pump. It's being assembled now. Next, it will be tested. All products are required to pass the tests. It will be operating in a harsh environment. There are nuclear power plant pumps and ship pumps but 95% of the products end up in the harsh environment of oil wells.
— Do you have clients outside of Russia?
Alexander Yegorikov, CTO of LeMaZ: „Yes. We've been working on expanding our exports in recent years. Today, we supply our pumps to approximately 20 countries, including the USA, Colombia and Venezuela in Latin America, the Congo in Africa, and Oman. Our pumps and our company are present everywhere where oil is pumped“.
During the assembly phase, one can see what's inside of an oil pump. It's like building blocks. Every section raises the liquid by 16 feet. The deeper it is, the more sections there are.
Alexander Yegorikov: The pump looks like a multisectional pipe with the length of 4 multiplied by 8 equals 32 meters.
— A 32-meter pump?
In order to produce about 800 pumps per month maintaining a competitive rate of production, the Lebedyan facility has invested thirty million dollars in modernization and is now introducing new products for arctic operations.
— So you want to manufacture pumps for oil wells based on the continental shelf?
Alexander Yegorikov: The oil industry is looking for a Russian equipment supplier. We're currently preparing to supply equipment to Gazpromneft. Our pumps will be used on the continental shelf.
Speaking about liquids, let's go back from the arctic coasts to the coast of the Voronezh river, back to Lipetsk. Water supply is a sensitive issue here. The chernozem region requires irrigation, but there's never enough water. 80% of the pipes are worn out.
Igor Artamonov: According to our estimates, addressing the water issue will cost us nine billion. And that's a rough estimate. Nothing has been done for a very long time. Many communities don't have water supply. It's an agricultural region, people need to irrigate, so they build wells on their own. Water supply and sewerage are our biggest problems. We're looking for an optimal solution to this issue.
— Do you just need federal support? Or are you planning to attract some investors?
— We could attract investors, but every investor means increased costs. Right now, we're looking for things we can fix on our own.
Frankly speaking, similar to many other regions, issues here have been piling up for years. Qualified personnel, medicine, and education. But experience has proven that all problems can be resolved.
Igor Artamonov: „Look, Lipetsk is one of the regions actively implementing the Economical Region program. We have high hopes that it'll help us get rid of the lines in our service industry, primarily in our medical centers. It's also supposed to save us some resources“.
Lipetsk Oblast has experience in overcoming difficulties. The local enterprises managed to adopt advanced technologies and create an investment magnet in the middle of a literal grass field.
The work of the many enterprises of Lipetsk Oblast are like salt on the wounds of those who impose sanctions, those who believe that foreigners can't learn from Russians, and those who think we're surrounded by unsolvable problems. We've got plenty of problems but we just saw those people who don't rant about it, sitting on their couch, and do their jobs against all odds, improving their own lives and the economy in general.