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Siemens VAI to Modernize Ukrainian Steel Plant

Published: June 10, 2013; 14:43 · (Vindobona)

The signing of a major contract in Ukraine for Upper-Austrian industrial plant construction company Siemens VAI is in its final steps.

Siemens VAI to Modernize Ukrainian Steel Plant / Picture: © Siemens Austria VAI

In Donezk one of the biggest steel production plants is supposed to be modernized. The contract value comes at € 100m, according to head of Siemens Ukraine Cornelius Granig in an interview with WirtschaftsBlatt.

The coal and steel region Donbass nearby Donezk is the heart of the Ukrainian heavy industry. The need in modernization is constantlyy increasing, according to Granig. He explains that most of the steel plants originate from the 1950s and 1960s. In regard to the planned free trade and association agreements with the European Union, the Ukraine has to push forward Western environmental standards. Granig declares that Austria was the first address for Kyiv. According to him, the govenor of Donezker has even traveled to Linz one winter to assure himself that the snow next to a steel plant was white.

Only recently Siemens VAI has delivered a casting installation for the larges Ukrainian steel producer ArcelorMittal Kryviy Rih. Further important costumers are the steel producer Industrial Soyus Donbass (ISD), Zaporizhstal and Metinvest Holding. The latter is controlled by the Ukrainian oligarch Rinat Akhmetov. Siemens VAI is alleged to have the best contacts to the Ukrainian steel industry.

The steel sector in the Ukraine is currently facing a crisis. The domestic steel production has dropped by 12 percent in 2012 and by 2 percent in the first five months of 2013 on a year-on-year comparison. Granig explains that it is therefore better to invest in modernization now rather than at a time when the market sees an upsurge again. For months there has been a debate about downgrading the Hrywnja to make the Ukrainian steel cheaper. However, Granig considers it better to rely on quality than on dumping prices. Ukraine is the world’s eighth biggest steel producer. The steel industry contributes to around one fourth of the country’s GDP

Major projects for the modernization of the steel sector have so far failed because of the high costs. Just recently the government has agreed to a subsidy program for such projects. According to the agreement, cheap credits are granted by 50 percent by the Ukrainian state-controlled banks Ukreximbank and Oschadbank and 50 percent via international banking institutes.

Wolfgang Eder, CEO of voestalpine, estimates that the production of steel in Europe will decrease from 140m tons by a half until the year 2030 in case the current economic conditions will not improve. He explains that many steel manufacturing enterprises were supposed to “die” because of a lack in competitiveness but because of public support funds they “must not die”. Hence the political influence increases and the enterprises are being kept “on life support”. Voestalpine’s CEO explains that governments see blast furnices as a symbol and consider it an economic downfall of a region when a steel factory has to be closed. Eder considers it a better idea to use parts of the industrial subsidies for an organized restructuring and the establishing of labor foundations, redundancy packages, etc.