V. Krupchak, the Head of Titan Group which Manages Arkhangelsk-Based Pulp-And-Paper Mill, the Second Largest Russian Cellulose Producer, Tells about the Situation at the Plant

When asked why Industry & Construction Bank's (ICB) president V. Kogan decided to buy a block of shares of Arkhangelsk-based Pulp-and-Paper Mill, V.Krupchak answered, "ICB has been cooperationg with Arkhangelsk-based Pulp-and-Paper Mill for a long time and has its branch in Arkhangelsk. The bank is aware of the situation in pulp-and-paper industry, because it was a major shareholder of ZAO Ilim Pulp Enterprise. ICB withdrew from ZAO shareholders for some reasons, but the bank is still interested in pulp-and-paper industry. We cherished a long-time wish to attract a stable financial institution able to secure long-term investments. All shareholders were involved in making this decision. However, I tried to convince them that this was not a speculative operation for ICB, but a long-term strategy which would be to the benefit of Arkhangelsk-based Pulp-and-Paper Mill."

According to V. Krupchak, "the mill needs large investments. Wear and tear makes 83%. The plant stands in need for investments to carry out reconstruction. Since Russian banks are unable to attract these funds, it was decided to sell a block of shares to Western companies. United Finance Group (UFG) acted as a consultant in this deal. We negotiated with companies which had been working with Arkhangelsk-based mill for many years and which were engaged in cellulose and cardboard manufacture and sale. They are interested in long-term investments in Russian pulp-and-paper industry. For example, the German company Conrad Jacobson owns a large block of shares of Kondopoga, the Austrian Wielfrid Heizel is the owner of several cellulose mills in Austria, the Czech Republic, and Russia which manufacture over 1 million tons of cellulose."

"Competition on the world celloluse market is today very keen. There is a significant overproduction. New production capacities, especially in the countries of South-Eastern Asia and South America, are put into operation every year. The fact that the largest European companies which have a developed sales network are among the plant's shareholders will help us secure our position on the market and expand volume of export deliveries. However, at present, the share of export in the plant's sales decreased. The plant exported 70% of its products in the past. Today the volume of export fell to 35% to 40%. We try to increase our sales on the domestic market where prices are higher."

When asked what Titan Group controled after it had sold a control block of shares of Arkhangelsk-based Pulp-and-Paper Mill, V. Krupchak answered, "We control timber industry enterprises, three timber mills, Murmansk-based Package Plant, Podolsk-based Cardboard Factory, and some other enterprises. Titan is the only supplier of raw materials to Arkhangelsk-based Pulp-and-Paper Mill. This mill is engaged in manufacturing, while ArkhBum Trading Company sells its products."

According to V. Krupchak, "we have our own program for converting assets of Titan Group and Arkhangelsk-based Pulp-and-Paper Mill into uniform shares. UFG deals with this program. We have already obtained an authorization of the Antimonopoly Committee to consolidate these assets. It is aimed at making our operations transparent. It is possible that we will sell 25% of shares on the open market or to a strategic investor."

"We consider two very interesting projects. The first project implies constructing a factory to manufacture art paper which is currently imported. We plan to invest about $300 million in this project. Besides, we plan to reconstruct the first celloluse-producing line of the mill. This project is estimated at almost the same amount. The board of directors will study documents and estimates and decide which of the two project will be implemented first."

As for new partners to carry through these projects, V. Kupchak said, "We are in negotiations over this. Heinzel and Jacobson have already showed their interest. Unfortunately, these companies fall short of free monetary resources sufficient to implement the whole project. However, they are able to attract significant investments. Besides, we count upon the largest Russian banks, first of all, upon the Bank for Foreign Economic Affairs. Most likely, it will be a pool of banks."

Vedomosti