Russian industry scrambles to cope with coronavirus restrictions
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Russia’s biggest industrial companies make money smelting metal, processing hydrocarbons, mining ore and producing energy. But some of them have been forced rapidly to diversify into building temporary accommodation, making respirator masks and even managing bus services to keep their business running as the coronavirus pandemic bites.
Unlike offices with employees that can work from home or retailers that can switch to online delivery, Russia’s vast industrial sector needs both workers who can physically attend production lines and regular shipments of components and materials, presenting companies with safety and logistical issues if they want to maintain output.
Business operations across the country’s industrial network of factories, power plants, mines and metalworks have been affected, after Moscow responded to the country’s rising number of cases by declaring a national holiday and restricting the movement of people.
While the big mining, metals and oil and gas companies are deemed “strategic” and therefore exempt from the shutdown, the smaller firms and contractors employed by them have been closed by government decree.
This has caused problems all along the supply chain, at the same time that demand has fallen sharply because of shutdowns in the EU and China.
“This situation is a challenge to our business,” said Dmitry Konov, chief executive of Sibur, Russia’s biggest petrochemical producer. “[But] with over 23,000 employees and entire cities in Russia depending on our continuous operations we bear huge responsibility.”
At some of its plants, Sibur has created temporary accommodation for shift workers who have tested negative for the virus, an initiative that Mr Konov said “ensures their own protection as well as the sustainability of company operations and continuous provision of municipal utility services”. It has also started running its own bus services to transport employees to and from work.
Many of the country’s biggest factories and mines were built during the Soviet era as the main employer for an entire town or district. That puts more pressure on their now private owners to help local communities.
Phosagro, Russia’s biggest phosphate fertiliser company, has turned company-owned hotels into worker housing and potential quarantine locations and is laying on more of its own buses, in an attempt to keep its workforce healthy and isolated.
Steelmaker Severstal will soon begin manufacturing respirators, to ensure employees have a supply for work and personal use. Additional supplies could also be provided to locals in Cherepovets, where the company’s main production site is located, it said in a statement.
In Krasnoyarsk, a big city in Siberia, EN+ Group — which owns aluminium producer Rusal and the hydropower plants that power its smelters — heard that bus services that bring contractors to work were being suspended, so it stepped in to lobby local authorities to keep transport running.
“Due to the limited list of companies with a licence to operate, many subcontractors are put on ice, hitting the whole supply chain hard . . . [some] have already reported force majeure on delivery of equipment and halted [operations] indefinitely,” EN+ said, adding that a delivery of turbine blades and rotor shafts to a power station had been cancelled, delaying its refurbishment.
Russia’s industrial output contracted 2.5 per cent in March, according to data from IHS. The national lockdown was imposed on March 30 and will run throughout April. Some officials have said they expect the economy to shrink about 5 per cent this year.
Severstal said it was “re-evaluating projects” and could cut capital spending by up to 30-40 per cent this year. Mr Konov said Sibur was “revising our capital and operating expenditure”.
“Data published in March relates to a bygone era before the impact of the Covid-19 virus,” said Chris Weafer, chief executive of Moscow-based Macro-Advisory. “It is clear the economy will suffer a sharp decline in the second quarter of 2020 due to the lockdown and lower oil receipts. April is likely to experience a double-digit decline.”
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But smelters, oilfields and power plants cannot simply be shut down to preserve cash and restarted when the lockdown eases. In addition, many of Russia’s biggest industrial plants are in remote places and require shift workers to commute, presenting major contagion worries.
“We employ thousands of people in remote parts of Siberia and the [Russian] Far East, and their health and wellbeing is crucial for our business,” said Pavel Grachev, chief executive of Polyus, the country’s biggest gold miner.
Polyus has begun testing as many as 10,000 employees at its sites in Siberia, and has set up a system to test and isolate employees before they travel to remote mines, in addition to daily health checks, on-site quarantine zones and increased in-house bus services.
In Aldan, a town in the Far East of Russia close to some of the company’s mines, the company is developing a coronavirus testing laboratory, as well as donating respirators and protective equipment to hospitals in the regions where it operates.
“This pandemic is unprecedented,” Mr Grachev added. “A joint effort of the government and private businesses is needed to overcome this problem.”
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