Part 2 of the Ukraine story recollects the successful integration of the AGA group into the Ukraine gases market.
Having established first contact in the Ukraine gases market, AGA saw the potential for investment and decided to assert itself in the region.
The acquisition of DOP
After the initial contacts in 1992 and 1993, we made several visits to the company, we invited the management to visit AGA in Sweden and Finland and in 1994, the company was listed among those companies in the Ukraine to be privatized.
The privatization process started in 1995, and a number of industrial gas companies declared interest. There were also a couple of international investment bankers who saw the opportunities of being involved at an early stage of the privatization process.
Thanks to good domestic and international legal advisers, AGA managed to acquire control of more than 75% of the DOP shares in the spring of 1996.
Incorporating DOP into the AGA group
The recent experience of operations in the Baltic Countries and Russia was very valuable when starting work in the Ukraine.
As AGA acquired the first two companies in Russia circa 1993-94, we already had experienced colleagues with good knowledge of the business and communication in Russian that could help develop the company.
It was decided that we would keep the ‘old’ management and give them support by means of advisers, who stayed more or less full time in Dnepropetrovsk.
Such support was given via a task force group, where we could involve the competence of the AGA group, thus utilising fresh experience from other ‘new markets’ – a concept which proved to be very efficient.
The difficult years
During 1997-98 there was a general downfall of the economy which also hit the industrial gas market. Reflecting on my notes of latter 1998, I recall that around 76 liquid clients were lost in the first half of the year (1998) for a variety of financial reasons.
While we had also gained 34 new clients, the volume drop was still 50% compared to the previous year. Having worked a number of years with the Baltic Countries and Russia we were rather well prepared for the other specific problems we faced.
However, the problem was not only the economy! We suspected there was also another reason for the sharp drop in sales. The market manager, who has now left the company, had planned his departure and future employment in such a way that clients had been transferred to new suppliers!
Challenges in Ukraine
Among other challenges faced in the Ukraine gas market of old, was something of a barter and credit situation. Almost 80% of the payment for deliveries from DOP was carried out as barter deals!
As an example, a lack of cash in the system made it impossible to buy carbide for the acetylene production. The result was that DOP developed into a company processing carbide into acetylene for another company, who then bought carbide and sold the acetylene.
Unfortunately, the barter deals took focus from the real business and gave too many possibilities for ‘loss of money’ in the deals.
The new ASU Linde is building in Kurahovo, in the Donetsk region, with GOX deliveries to Electro Stahl and 140 tpd liquid products forthe merchant market, will surely further strengthen the company’s market position in Ukraine.
This is the first over the fence contract in Ukraine in modern times and there is surely a market for more such investments in the Ukraine, by the international operators.
Establish a depot network
A traditional depot network with about 10 depots in the most industrialised parts of the country was developed. The first 10 depots, plus an additional 25 depots, are now in operation.
Other merchant companies in Ukraine
AGA was one of the earlier international gas companies to invest in the Ukraine, in fact it took another 10 more years until Cryogenmash acquired a majority stake in Oxygen Plant in Kiev, and the corresponding company in Kotovsk.
Messer also entered the market with the acquisition of Autogenous Plant in Kharkov and attempted to build a plant at Interpipe in Dnepropetrovsk.
The present financial recession has probably, for the moment, cooled international interest for the gas business in Ukraine.
It is good to see that the pioneer work we initiated more than 17 years ago has contributed very much to the development of the merchant market for industrial gases in Ukraine.
It is also pleasant to meet all those talented people I had the opportunity to work with in those ‘new countries’. Many of them are now doing very well in other industrial gas companies…
gasworld would like to thank the gasman, Lars Timner, for the contribution of his memoirs and his efforts in delivering these insights to our readers.
A former AGA employee, Lars was deeply involved with the expansion of AGA into new markets and will continue with his memoirs as the year unfolds. Watch out for more!