The gasman began recounting Russian experiences in last month’s Part 1 of the Russian story. Here in Part 2, we pick-up the trail deep in Moscow, once regarded as the most important market in the country.
The most important market in Russia was the Moscow region, with some 15 million inhabitants and a large proportion of the industrial output in Russia.
Here there were three main suppliers of industrial gases, notably Balashikhinskij Kislarodnyj Zavod (Balashika Oxygen Plant), JSL Logica, and Koksogas Zavod.
AGA BKZ in Moscow
The area around Moscow was regarded as the most fundamental market in Russia, where just Moscow city and Oblast alone had 15 million inhabitants.
Balashihinsky Kislarodny Zavod (BKZ), which was the biggest industrial gas company in Russia, had six ASUs each with 50 tonnes per day (tpd) nominal capacity. The company also operated the most qualified speciality gas plant in the former Soviet Union and was the only producer of neon in the region.
The company also had 25 railroad wagons and 18 trucks for liquid distribution, while the capacity for cylinder filling was an impressive three million high pressure cylinders per year.
The fact that BKZ’s next door neighbour was Cryogenmash certainly contributed to the high technical standards of the company.
BKZ was privatised in 1993 with 51% of the shares distributed to management and workers, and the remaining 49% kept by the state. Early 1994 saw an investment tender announced for the 35% of shares still controlled by the state.
AGA won the tender in competition with Messer and by mid 1994 had obtained the majority of the shares in the company. Production in Russian ASUs has later been replaced by a used (second-hand) 100 tpd plant transferred from AGA in Finland, and a liquid plant from Denmark.
Volgograd oxygen plant
Volgograd Kislarod Zavod (VKZ) is one of the oldest industrial gas companies in Russia, founded in 1934 to supply the nearby tractor factory.
During World War II (WW2) the city was known as Stalingrad and the factory was wiped out during the war, but reconstruction started as early as autumn 1943. The plant is located on the bank of the river Volga near a major steel plant (Red October), a tractor plant, and an alumina plant.
The company had four of the traditional Kz plants with a capacity 24 tpd and a huge fleet of railroad wagons for the transport of liquid products.
Privatised in 1993/1994, company management including MD Vladimir Pantyashin took control over the company and when Ariel Hoff and I visited the company in October 1994, Praxair had already visited the site.
The AGA management were not particularly enthusiastic about the prospect of a third acquisition in Russia at that time - in fact our first business with the company in Volgograd was in May 1994, when we purchased 600 tonnes of LIN for delivery to an oil exploration company that required gas for pipeline testing in Kazakhstan.
The contract meant that AGA bought 20 railroad car loads of LIN, which was transported from Volgograd to the site in Kazakhstan.
Krasnodar oxygen plant
Krasnodar is located in southern Russia near the Black Sea and to the east of the Crimea.
The company, now called Kubantechgas, had an interesting position in an Oblast market dominated by agricultural Industry.
The region was well known by Frigoscandia, a food processing and storing company that was a part of the AGA group. We saw an interesting location and possibilities to develop the AGA Gas skills with the competence of Frigoscandia’s food processing.
At our first visit to Krasnodar we were well received by the MD and had a good dialogue regarding future co-operation.
We received a positive response at AGA HQ and prepared for the next step, though during our second visit we were not able to visit the company site and instead met the MD at our hotel.
It turned out that the employees had fired the MD – that complicated our position! The company was later acquired by a financial group in Moscow.
Uraltechgas in Ekatrinenburg
The company had dominated the local market with its own production of air gases and acetylene, one of only two Russian producers of mass for acetylene cylinders.
The MD has skilfully negotiated with most of the international gas companies and visited AGA in Sweden for discussions. In the end Linde took control of the company – the fact that Linde had signed a contract with a major onsite customer near Ekatrinenburg surely influenced the decision to cooperate.
Market development in Russia
From 1990 industrial output in Russia experienced a downward trend and in 1998, production stood at around 50% of its level in 1990.
Russian capital had left the market and foreign investments in Russia were very limited, thus affecting the consumption of industrial gases and resulting in a great over-capacity in the market.
In other ‘new’ markets in Eastern Europe, the international industrial gas companies who now dominate those markets have restructured the industrial gas industry.
This process has now started in Russia, where international operators have now taken over more than 50% of the traditional merchant market companies.
The domestic food and manufacturing industry has also started to develop in recent history, with part of the food imports gradually replaced by local production based on Western expertise. This has given rise to a major push for the gases industry.
The first onsite contracts for supply to major consumers have been signed by Air Liquide, Linde and Cryogenmash, ensuring a major change in attitude – which has seen the traditional Soviet system for total control of resources changed towards a Western model for outside service.
Even so, it is thought that there is still a long way to go before gas customers in Russia can expect a service similar to that of Western Europe, the US and many other developed regions.